Brazil Lowers Interest Rate by 25 bps

Brazil’s central bank reduced its benchmark rate to 14.75% in March, less than the expected 50bps reduction, saying a monetary policy calibration cycle is needed as the prolonged hold provided evidence of transmission on the slowdown in economic activity. External factors such as the escalation of geopolitical conflicts in the Middle East 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 4.1% for 2026 and 3.8% for 2027, and Copom projects inflation at 3.3% by the third quarter of 2027. The committee flagged upside risks from persistent services inflation and a more depreciated exchange rate, and downside risks from a more pronounced global slowdown or reduction in commodity prices, judging that this decision remains consistent with converging inflation to target while smoothing the cycle.

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.