Brazil’s Central Bank Raises Interest Rates; Eyes Smaller Future Hikes
Brazil’s central bank has raised interest rates by 100 basis points to 14.25%, the third consecutive increase, while anticipating a smaller hike at the next meeting. Under Governor Gabriel Galipolo, the bank is closely watching inflation and economic activity indicators as President Lula pushes for stimulus despite potential conflicts. Analysts expect further hikes, concluding the cycle at 15.25%.
On Wednesday, Brazil’s central bank raised the benchmark Selic interest rate by 100 basis points for the third time, bringing it to 14.25%, the highest level since 2016. This decision was unanimous among the bank’s rate-setting committee, known as Copom, and aligned with the predictions made by 37 economists surveyed by Reuters. Policymakers indicated a smaller hike may follow at the next meeting as they monitor economic trends.
The central bank’s focus has shifted to the new governor, Gabriel Galipolo, who took office in January. Flavio Serrano, chief economist at Banco BMG, stated that he anticipates a reduction in the pace of monetary tightening to a 50-basis-point hike in May, which he believes will be the final adjustment of this cycle. Galipolo’s appointment has generated interest, particularly given his close ties to President Luiz Inacio Lula da Silva.
Many observers are closely evaluating how Galipolo will manage inflation as President Lula, facing low approval ratings, seeks to implement stimulus measures to boost consumption—potentially in conflict with the central bank’s goals to moderate economic activity. This development coincides with the U.S. Federal Reserve’s decision to hold rates steady while assessing the new administration’s direction.
The central bank cited ongoing challenges stemming from global economic conditions and fluctuating trade policies. Despite the Brazilian currency’s approximately 9% gain against the U.S. dollar this year, long-term inflation expectations remain uncertain, raising concerns about the ability to reach the 3% target.
While economic activity has shown resilience early this year, the previous quarter indicated a more significant than expected slowdown. Copom acknowledged indicators of strong economic activity, although they noted signs of potential growth moderation. Adjusting its forecasts, the central bank now projects 2025 inflation at 5.1%, slightly lowered from the previous estimate of 5.2%.
Analysts at JP Morgan observed minimal adjustments to the inflation outlook despite recent challenges. They predict continued hikes of 50 basis points in both May and June, which would culminate in a tightened policy rate of 15.25%.
Brazil’s central bank has consistently raised its interest rate, now reaching 14.25%, as it assesses the economic landscape, signaling a likely moderation in future hikes. With new leadership under Gabriel Galipolo, the focus will rest on navigating inflation while the government seeks to stimulate the economy. The central bank’s adjustments reflect a careful balancing act between growth and price stability, with experts predicting further increases in the coming months.
Original Source: money.usnews.com
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