Central Bank discussed future pause in rate cuts, Galípolo says

Central Bank Chair Gabriel Galípolo disclosed the discussion on Thursday (25) during a press conference for the release of the Monetary Policy Report, putting on the table for the first time — even if over an uncertain horizon — the prospect of a temporary interruption in the monetary easing cycle that began only three months ago, in March. Galípolo also made a “mea culpa,” acknowledging that the Copom statement contributed to market noise over the future path of the benchmark interest rate.

Last week, Galípolo said, Copom ruled out a pause and lowered the Selic by 25 basis points, to 14.25%. After that, the committee moved into a “prospective” discussion about the course of monetary policy. “There are scenarios we began to discuss prospectively, involving pauses at different points and resumptions at different points,” he said.

According to the Central Bank chair, that possibility is reflected in the Copom minutes released on Tuesday, when the committee said it had opted for Selic paths that were “less divergent” from those projected by the market.

Even so, Galípolo and interim Economic Policy Director Paulo Picchetti avoided giving a firmer signal on the next steps for monetary policy. Picchetti, who is also director of International Affairs and Corporate Risk Management, defended the need to preserve “degrees of freedom” and said the calibration of the Selic will be adjusted as the scenario evolves.

Asked about criticism from financial markets, Galípolo said that in periods of greater uncertainty it is normal for investors to seek “guidance” on future policy. But he added that “no central bank is adopting that policy in the world, and the literature does not recommend it.”

“There is, in this type of criticism, this confusion between being clearer in the statement and signaling what you are going to do. One thing cannot be confused with the other,” he said.

Communication noise

Galípolo made a “mea culpa,” however, by acknowledging that the statement helped create noise in financial markets last week. He said the lack of clarity came from an “excess” of information, rather than from a lack of transparency. According to him, the minutes sought to clear up those doubts.

One source of noise was the balance of risks for inflation, updated with four factors pointing to upward pressure and three to downward pressure — but without making clear in the statement that the balance was asymmetric to the upside, something that was only spelled out in the minutes.

In the balance of risks, the Central Bank provides a more qualitative assessment of factors that could push inflation above or below its projections. Galípolo denied that the asymmetry requires a “mechanical reaction” from monetary policy.

“We thought the 4-to-3 [in the balance of risks] was kind of obvious, that it was asymmetric. That does not establish any kind of mechanical reaction from a monetary-policy standpoint,” he said. At another point in the press conference, however, the Central Bank chair said the balance can be classified as asymmetric regardless of the “count” of upside or downside risks.

Picchetti said part of the market’s negative reaction to the statement reflected the lack of signaling on the next steps for monetary policy. “The Central Bank sees no present value in giving a signal in a scenario with so much uncertainty,” he said.

He acknowledged that the statement’s unusually long text also made it harder to understand. “The paragraph in the Copom statement sought to summarize discussions, and we knew it would generate a strong reaction simply because it was very different from the usual statement,” he said.

Demand risks

The Central Bank included government measures to stimulate consumption among the risks that could put upward pressure on inflation. Picchetti said the composition of expected GDP growth this year has changed because of the outlook for stronger demand. The monetary authority raised its projection for household consumption in 2026 to 2.1% from 1.4%.

“There are effects from income-tax reduction incentives and from the various measures that are already affecting disposable income, making this increase in household consumption possible,” Picchetti said.

In the Monetary Policy Report, the Central Bank raised to 79% the probability that the benchmark inflation index, the IPCA, will end 2026 above the target ceiling. For 2027, the probability is 28%.