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Brazil’s central bank kept its benchmark Selic rate at 15% as inflation expectations remain above the target level through 2028, Bloomberg reports. Policymakers believe the country still requires a tighter monetary policy stance. Board members said they will continue to closely monitor labor-market conditions and the impact of fiscal policy under President Luiz Inácio Lula da Silva.
Economic activity continues along a path of moderate growth, broadly in line with earlier expectations. At the same time, policymakers argue that even amid slowing inflation it is premature to speak of a sustainable return to target levels. The labor market remains tight, in their assessment, although early signs of cooling are emerging. High employment continues to put pressure on inflation in the services sector, which is slowing but remains resilient, limiting room for monetary easing in the short term.
Marcos de Marchi, chief economist at Oriz Partners in São Paulo, notes that the central bank remains highly concerned about labor-market dynamics and continues to view inflationary factors as unfavorable. On the one hand, there is a persistent view that current indicators are demand-driven and therefore require restrictive policy for a very long period. On the other, policymakers acknowledge that the tight measures already implemented have played a decisive role in the disinflation now being observed.
The economy of Latin America’s largest country slowed in the latest quarter, while formal job creation weakened sharply in October. The central bank’s economic activity index, used as a proxy for GDP, fell by 0.25% month on month in October, worse than the Bloomberg median forecast of a 0.1% decline.
Borrowing costs are at their highest levels in nearly two decades. The regulator describes the current environment as uncertain and is maintaining a cautious stance. The central bank is tracking the impact of President Luiz Inácio Lula da Silva’s fiscal policy ahead of the 2026 election cycle, as well as fluctuations in the national currency.
Bloomberg economist Adriana Dupita believes easing could begin as early as the first quarter, although a January rate cut would only be possible if the national currency strengthens sustainably ahead of the next meeting. Many other analysts expect changes in March. Caio Megale, chief economist at XP Inc., says the committee shows no readiness to cut the Selic rate in January despite improving inflation dynamics. In his view, policymakers are clearly signaling that more time and additional data are needed. Leonardo Costa, an economist at ASA, does not rule out a further rate hike if necessary.
Previously, the central bank raised rates for seven consecutive meetings, by a cumulative 4.5 percentage points, before announcing a pause in June to assess the impact of tightening on the cost of living. In November, annual inflation returned to the acceptable range for the first time in 14 months, with consumer-price growth slowing to 4.46%, below the upper limit of the 4.5% corridor, though still above the 3% target.
The regulator lowered its own inflation forecast for the second quarter of 2027 — the key horizon for monetary policy — to 3.2% from 3.3% a month earlier. At the same time, inflation expectations remain above the 3% target. Market participants expect consumer prices to rise by 4.36% this year, 4.1% by the end of 2026 and 3.8% in 2027. Forecasts for 2028 remain unchanged.
The International Monetary Fund projects Brazil’s GDP growth to slow from 3.4% in 2024 to 2.3% in 2025. This scenario reflects the persistence of tight monetary conditions and reduced fiscal support. Inflation is expected to be around 5.2% and to decline toward the 3% target only in the medium term, closer to 2027. The Fund notes that current monetary policy is effectively containing price growth, but risks to economic expansion remain elevated.
Analysts at the Organisation for Economic Co-operation and Development expect GDP to grow by 2.4% in 2025. Growth will be supported by domestic demand, while investment will continue to be constrained by high borrowing costs. Inflation, according to the OECD, will remain above target at around 5.1%, limiting the scope for rapid monetary easing. Adherence to fiscal targets remains a key condition for macroeconomic stability.
Analysts at International Investment conclude that Brazil’s central bank is deliberately delaying easing and that high interest rates will persist at least in the coming months. For investors in bonds and other fixed-income instruments, the environment remains relatively favorable. For those investing in equities and projects dependent on domestic demand, risks are increasing, as prolonged high borrowing costs restrain economic activity and corporate profits. Overall investment risk remains elevated due to uncertainty over the timing of rate cuts and the impact of fiscal policy ahead of the 2026 elections.