Brazil Holds Interest Rate 15%, As Expected

Brazil’s central bank maintained its benchmark rate at 15.00% in January, saying a prolonged hold is needed to keep inflation on a steady path toward the target amid elevated uncertainty. External factors such as US economic conditions and global financial volatility continue to affect emerging markets, while domestically growth is moderating even as the labour market remains resilient and inflation has improved but stays above target. Inflation expectations stand at 4.0% for 2026 and 3.8% for 2027, and Copom projects inflation at 3.2% by the third quarter of 2027. The committee flagged upside risks from persistent services inflation and a weaker exchange rate, and downside risks from a sharper domestic slowdown or falling commodity prices, judging that holding rates for a fairly prolonged period remains consistent with converging inflation to target while smoothing the cycle.

Brazil’s central bank maintained its benchmark rate at 15.00% in December, saying a prolonged hold is needed to keep inflation on a steady path toward the target amid elevated uncertainty. External forces such as US economic conditions and global financial volatility continue to feed through to emerging markets, while at home growth is moderating even as the labour market shows resilience and inflation readings have cooled but remain above target. Inflation expectations stand at 4.4% for 2025 and 4.2% for 2026, and Copom projects 3.2% by the second quarter of 2027. The committee flagged upside risks from more persistent services inflation and a weaker exchange rate as well as downside risks from a sharper domestic slowdown or falling commodity prices. It judged that holding the current rate for a fairly prolonged period is consistent with its strategy of converging inflation to target while smoothing the cycle, but said future policy adjustments may be necessary if risks materialize.

Brazil’s central bank opted to maintain its benchmark interest rate at 15% in November, citing the need to keep inflation on a path toward the target amid persistent uncertainty. External factors, including US economic conditions and global financial volatility, continue to influence emerging markets, while domestically, growth is moderating but the labor market still shows dynamism and inflation remains above the target. Inflation expectations for 2025 and 2026 remain elevated at 4.5% and 4.2%, with Copom projecting 3.3% for the second quarter of 2027. The central bank highlighted upside risks such as resilient services inflation and a weaker exchange rate, alongside downside risks like a sharper domestic slowdown or falling commodity prices. Copom emphasized that future policy adjustments may be necessary to maintain price stability. The decision reflects a cautious approach, balancing the need for inflation control with support for economic activity.