Central Bank holds rates at near two-decade high in July

The BCB halts aggressive policy tightening: At its 29–30 July meeting, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) paused its tightening cycle and decided to maintain its SELIC rate at 15.00%—the highest level since July 2006. The decision to hold, which was unanimous, followed a total of 450 basis points of increases in September 2024–June 2025 and had been priced in by markets.

Heightened economic uncertainty calls for caution: The BCB held instead of hiking for a number of reasons. Firstly, the Bank said it want to assess the impact of prior rate increases. Furthermore, it stated that both upside and downside risks to the economic outlook remain higher than usual. Moreover, the Bank’s headline inflation expectations for 2025 and 2026 were stable from the prior meeting at 4.9% and 3.6%, respectively. Adding to the call for caution, the COPOM focused on the heightened uncertainty from the threat of 50% U.S. tariffs on Brazilian exports. Regarding economic activity, the BCB noted that, while high-frequency data has shown a slowdown in GDP growth, the labor market remains strong.

Policy stance to remain tight ahead: The Central Bank said it plans to hold rates steady until it can assess whether they’re high enough to guide inflation back to its target. The Bank noted this could take “a very prolonged” amount of time. All of our panelists expect the Bank to hold again when it reconvenes next on 16–17 September. Most of our panelists see the Bank holding fire in Q4, and the rest see room for some slight policy easing.

Panelist insight: Analysts at the EIU expect mild monetary policy easing to begin in 2026: “A relatively stable Brazilian Real, a weakening domestic economy and ongoing disinflation will create room for a pivot towards monetary loosening by early 2026. We expect the BCB to gradually lower the benchmark Selic policy rate from its current level of 15% to a terminal level of around 9% by 2027–28, implying a real neutral interest rate of 4.5-5.5%.”

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