{"id":93455,"date":"2025-03-28T17:02:25","date_gmt":"2025-03-28T20:02:25","guid":{"rendered":"https:\/\/murray.adv.br\/?p=93455"},"modified":"2025-03-28T17:02:27","modified_gmt":"2025-03-28T20:02:27","slug":"brazils-central-bank-signals-high-interest-rates-for-longer","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/brazils-central-bank-signals-high-interest-rates-for-longer\/","title":{"rendered":"Brazil\u2019s Central Bank signals high interest rates for longer"},"content":{"rendered":"\n
Monetary authority Chief Gabriel Gal\u00edpolo says unanchored expectations require \u201cgreater effort\u201d; institution sees 70% chance of inflation above target in 2025<\/em><\/strong><\/h6>\n\n\n\n

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03\/28\/2025<\/p>\n\n\n\n

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The persistence of inflation and the perception that it will remain above the target has not only led to a sharper increase in Brazil\u2019s benchmark interest rate, the Selic, but may also require it to stay high \u201cfor longer,\u201d officials from the Central Bank said on Thursday (27).<\/p>\n\n\n\n

\u201cWe talk a lot, we write a lot, we are aware that, with expectations unanchored at the current level, the Central Bank\u2019s effort needs to be greater,\u201d said Central Bank Chair Gabriel Gal\u00edpolo during a press conference on the Monetary Policy Report. \u201cThat is precisely why we have moved forward and continue in a cycle that has pushed interest rates to historically high levels.\u201d<\/p>\n\n\n\n

It was the first time Mr. Gal\u00edpolo took part in presenting the report \u2014 which replaced the Inflation Report \u2014 as head of the monetary authority.<\/p>\n\n\n\n

\u201cWhen expectations are unanchored, interest rates must be higher, as we are seeing in this cycle, and for longer \u2014 that is the second dimension [of the adjustment],\u201d said Diogo Guillen, the Central Bank\u2019s director of economic policy, during the same press conference.<\/p>\n\n\n\n

Mr. Guillen echoed what had been written in the minutes of this month\u2019s Monetary Policy Committee (COPOM) meeting, published on Tuesday. The document noted that long-term unanchored expectations make it harder to bring inflation back to the target and require \u201ca tighter monetary policy and for longer than would otherwise be appropriate.\u201d<\/p>\n\n\n\n

In its baseline scenario, the Central Bank projects inflation of 5.1% this year and 3.7% in 2026. Inflation would only approach the continuous target of 3% in the third quarter of 2027, when it is expected to fall to 3.1%.<\/p>\n\n\n\n

Mr. Gal\u00edpolo said the Central Bank knows that, in the short term, it will face inflation above the target and, therefore, more contractionary interest rates. The monetary authority sees a 70% chance of the IPCA consumer price index ending this year above the upper limit of the target range (4.5%) and zero probability of falling below the lower limit. For 2026, it estimates a 6% chance of inflation falling below the lower limit and a 28% chance of exceeding the upper limit.<\/p>\n\n\n\n

Mr. Gal\u00edpolo avoided giving any hints about COPOM\u2019s next steps. Last week, the committee signaled a further increase in the Selic rate at its May meeting, but likely smaller than the hikes made at the two previous meetings. Last week, the COPOM raised the Selic from 13.25% to 14.25%.<\/p>\n\n\n\n

The signal of a smaller hike left open the possibility of an increase of 25, 50, or 75 basis points. Market odds currently favor a 50-bp hike, though a 75-bp increase remains on the table.<\/p>\n\n\n\n

When asked about how he viewed market bets, Mr. Gal\u00edpolo refrained from giving a clear signal. \u201cIf we were convinced, we would have written that [in the minutes],\u201d he said. \u201cI believe the minutes are still quite valid, they\u2019re not outdated. We want to preserve these degrees of freedom to be able to make that decision at the right time.\u201d<\/p>\n\n\n\n

However, the Central Bank chief made it clear that the monetary tightening is not over. \u201cFor all the existing reasons, the cycle needs to be extended. However, due to the uncertainties, to a lesser extent. We can only provide guidance for the next meeting about what we intend to do,\u201d he said.<\/p>\n\n\n\n

Mr. Gal\u00edpolo also gave further clarification on why the COPOM\u2019s statement and minutes referred to the \u201clags inherent to the monetary tightening cycle\u201d to justify the signal of a smaller Selic hike at the next meeting.<\/p>\n\n\n\n

\u201cWe are now entering a level of interest rates that is contractionary with some certainty,\u201d he said. According to him, the Central Bank is monitoring economic activity data and other indicators, such as expectations, to \u201cunderstand whether this level of monetary policy is contractionary enough.\u201d<\/p>\n\n\n\n

When asked whether the impact of the new payroll-deductible loan program for private-sector workers had been factored into the Central Bank\u2019s projections, Mr. Gal\u00edpolo said it had not and explained that several uncertainties remain.<\/p>\n\n\n\n

One of them is whether the measure will result in a new flow of credit or simply a replacement of old debt with new debt. He said he did not see the program as a government initiative to stimulate the economy at a time when the Central Bank is seeking to cool it down to lower inflation. \u201cIt is a measure more focused on structural rather than cyclical issues,\u201d he said.<\/p>\n\n\n\n

He also noted that the bill exempting workers earning up to R$5,000 per month from income tax had not been considered in the Central Bank\u2019s projections either.<\/p>\n\n\n\n

*By\u00a0Gabriel Shinohara,\u00a0Alex Ribeiro,\u00a0Estev\u00e3o Taiarand\u00a0Ana\u00efs Fernandes\u00a0\u2014 Bras\u00edlia and S\u00e3o Paulo<\/p>\n\n\n\n

Source: Valor International<\/p>\n\n\n\n

\nhttps:\/\/valorinternational.globo.com\/\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"

Monetary authority Chief Gabriel Gal\u00edpolo says unanchored expectations require \u201cgreater effort\u201d; institution sees 70% chance of inflation above target in 2025 03\/28\/2025 The persistence of inflation and the perception that it will remain above the target has not only led to a sharper increase in Brazil\u2019s benchmark interest rate, the Selic, but may also require […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[23772,25986],"class_list":["post-93455","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-brazils-central-bank","tag-high-interest-rates-for-longer"],"yoast_head":"\nBrazil\u2019s Central Bank signals high interest rates for longer - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/brazils-central-bank-signals-high-interest-rates-for-longer\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brazil\u2019s Central Bank signals high interest rates for longer - 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