Brazil's Central Bank Raises Selic Rate to 15.00% Amid Inflation Concerns

The Central Bank of Brazil (Copom) has raised its benchmark Selic interest rate by 0.25 percentage points to 15.00%. This decision, made on the evening of the 18th local time, marks the seventh consecutive rate hike since September 2024, bringing the rate to its highest level since May 2006. The move is a response to persistent inflation concerns, with inflation expectations for 2025 and 2026 remaining above the target.

The rate hike is part of a broader effort to manage inflation, which has been a significant issue for the Brazilian economy. The latest projections suggest that the market no longer believes that the benchmark rate will return to single digits during the current administration. The central bank's monetary policy committee will meet again on July 29-30 to reassess whether to maintain, raise, or lower the benchmark rate. While inflation pressures persist, there has been a recent slowdown in the rate of increase. For instance, the domestic inflation rate in February was 1.31%, the highest for that month since 2003, but it has since shown signs of easing.

Over the past 12 months, ending in May, inflation as measured by the official consumer price index (IPCA) has risen by 5.32%. This figure remains above the 4.50% upper limit of the annual inflation target, indicating that Brazil may once again fail to meet its annual inflation goal for the year. The central bank's primary tool for controlling inflation is the Selic rate, which, when increased, typically suppresses consumption and investment, raising the cost of financing and slowing economic activity. This, in turn, helps to curb inflation driven by overheating economic activity and rising prices for goods and services.

Market opinions on the future direction of the Selic rate are divided. Some analysts predict that the rate will continue to rise by another 0.25 percentage points, while others believe that the current rate hike marks the end of the tightening cycle. The central bank will continue to monitor economic conditions closely and adjust its policies as needed to ensure price stability. The next policy meeting is scheduled for July 29-30, where the committee will evaluate the economic outlook and decide on any further adjustments to the benchmark rate.