Central Bank holds fire in September, as expected

BCB extends pause in tightening cycle: At its meeting on 16–17 September, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) held, for the second consecutive meeting, its SELIC rate at 15.00%—the highest level since July 2006. The decision to hold, which was unanimous, followed 450 basis points of increases in September 2024–June 2025 and had been anticipated by markets.

Bank continues to proceed cautiously: At its September meeting, the Central Bank proceeded with caution again, holding rates steady as both upside and downside risks remain higher than usual—particularly due to geopolitical tensions. The Bank stated it will continue to monitor the impacts of U.S. tariffs and domestic fiscal policy developments on prices. Moreover, both headline and core inflation linger above target. Additionally, inflation expectations remain unanchored above the Bank’s 3.0% target with a plus/minus 1.5 percentage points tolerance band: The BCB’s headline inflation expectations for 2025 and 2026 were virtually unchanged at 4.8% and 3.6%, respectively, and for Q1 2027 they stood at 3.4%. Regarding activity, the Bank noted the domestic economy is showing signs of moderation, but the labor market remains strong, indicating resilience in economic activity.

Rates to stay elevated for some time: The Central Bank did not provide explicit forward guidance, but instead stated it will evaluate if maintaining the SELIC rate at its current level for a “very long period” will be enough to guide inflation back to target. The BCB affirmed it will hike rates again if needed. Virtually all of our panelists expect the BCB to hold rates steady at its 4–5 November and 9–10 December meetings, and the rest see room for a 25–50 basis point cut. Our Consensus is for around 275 basis points of reductions in 2026.

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