Brazil's central bank signals high bar for rate hikes despite inflation risks
TLT•Brazil's central bank minutes said weak growth and demand could limit inflation spillovers from supply shocks, reinforcing expectations that the Selic rate will remain at 13.75% despite rising inflation risks.
1. High bar for hikes
Minutes from last week's meeting, when policymakers left the benchmark Selic rate at 13.75%, said below-potential growth and weak demand could prevent supply shocks from causing more persistent inflation. The bank cited higher oil prices, El Niño-related pressures, the impact of ending the 44-hour workweek and a weaker currency linked to domestic policy uncertainty.
2. Growth and inflation risks
The minutes warned that domestic growth moderation may intensify and said retail surveys point to a turning point, particularly in credit-sensitive segments. Policymakers noted that headline and underlying inflation had exceeded the target range's upper limit and inflation expectations had moved further from the 3% target.
3. Rate outlook
Economists said the minutes reinforced expectations that rates would remain on hold. ABC Brasil reiterated its call for the Selic rate to remain at 13.75% through at least the end of 2027, while JPMorgan analysts said continued depreciation of the real could eventually leave policymakers with little alternative but to tighten.
