Brazil Monetary Policy October 2021


Brazil: COPOM hikes rates for sixth consecutive meeting in October

October 27, 2021

At its 26–27 October meeting, the Monetary Policy Committee (COPOM) of Brazil’s Central Bank (BCB) unanimously decided to raise the benchmark SELIC interest rate by 150 basis points to 7.75%—as widely expected by market analysts—which marked the sixth consecutive hike. The decision was the biggest interest rate rise in almost 20 years, and pushed the rate to its highest level since mid-2017.

The decision to further tighten its monetary stance reflected the Bank’s efforts to tame ever-rising inflation amid the effects of dry weather conditions on food and electricity prices, supply restrictions and higher price pressures for industrial goods. The Bank now forecasts inflation to end 2021 at 9.5% (previously projected: 8.5%) and 2022 at 4.1%. Meanwhile, core inflation continues to lie above the range of what is compatible with the Bank’s inflation targets of 3.75% and 3.50% for 2021 and 2022, respectively. That said, COPOM still considers risks to inflation in both directions: On the one hand, a potential reversal in global commodity prices could exert downward pressure, while on the other, a further extension of fiscal relief measures could worsen the fiscal trajectory, increasing risk premiums and stoking price pressures in turn.

In its communiqué, the Committee maintained a similar tone from previous meetings, but added additional hawkish emphasis to its statement that “at this moment, the COPOM's baseline scenario and the balance of risks indicate that it is appropriate for the monetary tightening cycle to advance further into contractionary territory”. For the next meeting in December, the Committee sees another hike of the same magnitude, while the majority of our panelists also see rates rising to 9.25% by the end of 2021.

Reflecting on the potential path for COPOM’s tightening cycle, Ana Madeira, chief economist at HSBC, commented:

“We now expect Selic at 9.25% by year-end (vs 8.25% before) and to reach its terminal rate of 10.25% by Q1 2022. BCB signalled another 150bp hike in December, noting this to be an adequate pace given deterioration in the balance of risks and higher inflation forecasts. It added the need to move “furthermore” into contractionary territory. We see room for an easing in monetary policy by end-2022 given the down-weight on activity that a double-digit rate will cause.”

The next monetary policy meeting is scheduled for 7–8 December.

Last month, FocusEconomics panelists projected the SELIC rate to end 2021 at 8.08% and 2022 at 8.65%. New forecasts will be published on 9 November, and are likely to be notably above last month’s projections in light of recent developments.

Author:, Economist

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Brazil Monetary Policy Chart

Brazil Monetary Policy October 2021

Note: SELIC target rate (Taxa SELIC meta) in %.
Source: Central Bank of Brazil (Banco Central do Brasil).

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