Brazil’s Central Bank to Raise Interest Rates

By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s central bank plans to raise its benchmark interest rate by 100 basis points on Jan. 29, escalating borrowing costs to the highest in nearly two decades by mid-year, according to a Reuters poll.

The anticipated increase, confirmed by policymakers, would mark Banco Central do Brasil’s (BCB) second full percentage point rise, following an unexpected hike of the same magnitude in December.

With inflation concerns growing globally, Brazil’s rates are projected to end significantly higher than previously expected just a month ago. This month’s decision will be the first under newly-appointed bank governor Gabriel Galipolo, who faces increasing domestic challenges and global volatility.

Policymakers, known as Copom, are expected to raise the benchmark Selic by 100 basis points to 13.25% from 12.25% on January 29, according to the median estimate of 38 economists polled from January 21-24.

Brazil’s Selic rate has gained importance as a guide for global monetary policy trends, potentially influencing future U.S. rates. The BCB first increased the Selic in March 2021, following a similar shift in the U.S. a year later, and began easing in August 2023 preceding the Federal Reserve’s recent cuts.

Third 100 Basis Points Increment Expected

All 30 economists surveyed expect a third 100 basis points increment in March, raising the Selic to 14.25%, the highest since September 2016. No Copom meeting is scheduled for February.

Tomas Goulart, an economist at Novus Capital, noted, “BCB has already made clear in its guidance the need to raise the Selic rate by at least another 200 basis points.”

The median forecast suggests the Selic rate could peak at 15.00% next quarter, the highest since June 2006 when it was at 15.25%. Earlier in December, the Selic was expected to peak at 13.50% in the second quarter.

Consumer prices in Brazil are projected to rise an annual 5.08% by the end of 2025, exceeding the official inflation target of 3% ± 1.5 percentage points. Goulart has indicated that to align inflation projections, the Selic rate must reach at least 15.75%. “Copom will do everything it can to make this happen,” he stated.

(Reporting and polling by Gabriel Burin in Buenos Aires; editing by Barbara Lewis)