Data will guide timing of rate cuts, Central Bank chief says

“This is a central bank that remains data-dependent, and tries to be as transparent as possible about what it sees and how it’s likely to respond,” Mr. Galípolo said during a press conference on Thursday (25) about the Monetary Policy Report.

The COPOM kept the benchmark Selic rate at 15% last week and said it would remain “vigilant,” evaluating whether maintaining this level for a prolonged period would be enough to bring inflation down to its 3% target.

Mr. Galípolo said this marks a new phase in the tightening cycle, one that brings challenges “in terms of explaining our work to the public.” He added that the committee had anticipated this more complex stage.

Central Bank Economic Policy Director Diogo Guillen explained why last week’s COPOM statement no longer included the phrase, used in the July meeting, that referred to a “pause” in the rate hike cycle, language that had left the door open for rates to rise above 15% if needed.

Mr. Guillen said the committee is now more confident that the economic scenario is unfolding as expected, making it possible to move past the idea of a pause. The focus now is on whether the current level of interest rates is sufficient for inflation to converge toward the target.

The Central Bank’s stance—keeping interest rates at their highest level in nearly two decades for an extended period—has drawn criticism this week from Finance Minister Fernando Haddad. On Tuesday, he said the current rate level was unjustified and that there was room for cuts. Still, he acknowledged that Mr. Galípolo took over in the midst of a “major crisis” and that he was not in his position.

Asked about the criticism, Mr. Galípolo said it was “absolutely legitimate” for the finance minister to voice his opinion. He also referred to recent remarks by National Treasury Secretary Rogério Ceron, who said the high Selic rate “hurts” from a fiscal policy standpoint, but also recognized that monetary policy must be conducted and has been “very successful.”

“Personally, I think it’s a luxury to have the Finance Minister and the Treasury Secretary making comments on monetary policy with such delicacy, kindness, and respect,” Mr. Galípolo said.

He added that concerns that high interest rates could trigger a “sharp downturn” in the economy have eased, as have doubts about whether monetary policy would succeed in steering inflation toward the Central Bank’s projections.

“Things are moving toward what looks like a softening of economic activity, precisely to protect workers’ income,” he noted.

The Central Bank’s updated GDP forecast points to 2% growth in 2025, with a slowdown in the second half of the year that is expected to continue into 2026, when the economy is projected to grow 1.5%. Meanwhile, inflation is expected to continue declining, reaching 3.6% at the end of 2026, 3.2% in 2027, and 3.1% in the first quarter of 2028. The inflation target is 3%.

Mr. Galípolo also commented on planned changes to the housing credit system. He said a new framework is being developed and will be discussed at a meeting of the National Monetary Council (CMN). “We can’t wait until savings start running low,” he said, noting that this could force the government to find a new solution without enough resources to ensure a smoother transition to the new system.

“Our view at the Central Bank is that the longer we wait, the fewer tools, less room, and fewer instruments we’ll have to cushion a potential transition.”

Mr. Galípolo also said that finding a solution for the proposed constitutional amendment on the Central Bank’s financial autonomy depends on internal consensus.