The Central Bank of Brazil recognized that inflation shows signs of deceleration and that economic activity is advancing towards a gradual moderation, although it decided to keep the basic interest rate unchanged, which remains at 15% per annum, the highest level in almost two decades. This was indicated by the Monetary Policy Committee (Copom) in its statement following the meeting held last week, in which it did not provide details on the start of a potential rate-cutting cycle. The body assessed that the Brazilian economy is on a cooling path and acknowledged “the decrease in current inflation and the reduction of inflationary expectations,” although it warned that the latter still remain above the official target. Copom reaffirmed a prudent strategy and stated that it will remain vigilant, without ruling out new rate hikes if the context requires it. “It will not hesitate to resume the cycle of interest rate hikes if it considers it appropriate,” the Committee stated, while emphasizing that inflation expectations, measured by different instruments and agents, continue to be above the target across all horizons. Official projections place inflation at 4.4% for 2025 and 3.5% for 2026, both higher than the center of the annual 3% target. Economic slowdown as an anti-inflationary strategy The statement emphasized that the current scenario requires maintaining a restrictive monetary policy for an extended period. “In an environment of unanchored expectations, greater and longer-lasting monetary restriction is required than would previously have been appropriate,” Copom affirmed, highlighting the importance of perseverance and firmness to achieve inflation convergence with the least possible cost to the economy. Regarding economic activity, the Central Bank reiterated that the slowdown in growth is part of the strategy to contain prices, especially in the services sector.
