The Central Bank of Brazil faces a critical juncture this Wednesday as its Monetary Policy Committee (Copom) prepares to announce its decision on the Selic rate.
In a report by local media platform Infomoney, XP economist Tiago Sbardelotto was quoted as describing the upcoming decision—whether to hold or hike the benchmark interest rate—as one of the most complex in recent years, amid conflicting signals from recent economic data.
On one hand, short-term inflation has eased, helped by stronger-than-expected manufacturing output and a more stable exchange rate.
On the other hand, broader economic indicators remain mixed.
Economic activity continues to show resilience, particularly in the labour market, retail trade, and services.
However, inflation expectations remain above the official target, suggesting that long-term inflationary pressures have yet to be fully contained.
Data sends mixed signals
Policymakers have signalled since the last Copom meeting that future rate decisions would be heavily guided by incoming economic data.
However, XP economist Sbardelotto noted that recent indicators have not offered a clear direction.
The indicator stream does not permit a very conclusive view about what should be the Central Bank’s answer, he said on XP’s Morning Call program.
The Central Bank remains focused on addressing persistently high inflation expectations.
While the appreciation of the real—from R$6 to R$5.50—has helped ease short-term inflationary pressure, projections still point to headline inflation rising to 4.8% this year and 3.6% in 2026.
Both are over the Central Bank’s inflation target, leaving little room to reduce interest rates.
Uncertainty in central bank messaging
The absence of clarification from Central Bank leadership exacerbates the situation.
President Gabriel Galípolo and other authorities have not provided a clear indication of Copom’s future path.
Because of the vagueness in communication, analysts and markets are speculating on whether the committee would keep the interest rate at 14.75% or raise it by 25 basis points.
Sbardelotto believes that, given the lagged impacts of monetary policy and the current flow of economic data, keeping the Selic rate at 14.75% is the most prudent course of action.
However, he did not rule out the prospect of a minor hike, underlining that such a move would still be compatible with Copom’s overall inflation-fighting objective.
Rates to stay high through 2026
Regardless of whether the Central Bank holds or raises rates this week, XP’s economist feels the tightening cycle is nearing its end.
From this point forward, the analyst does not anticipate further rate increases.
The scope for rate cuts will remain constrained until inflation expectations get back into alignment with the statutory target and fiscal consolidation broadens.
For Sbardelotto, this suggests that a monetary easing is out of the question until the second half of 2026.
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