Brazil's Central Bank cuts Selic rate to 14.75 percent

The Monetary Policy Committee (Copom) of the Central Bank of Brazil (BCB) decided unanimously to cut the basic interest rate, the Selic, by 25 basis points to 14.75 percent per annum.

This marks the beginning of a calibration cycle for the key rate, aiming to ensure inflation converges to the target.

The decision considers an external environment marked by increased geopolitical conflicts in the Middle East, leading to higher volatility in global asset and commodity prices.

Domestically, GDP results for the last quarter of 2025 indicated an expected deceleration in economic activity, while the labor market remained resilient.

Recent inflation readings, both headline and underlying measures, showed some moderation but stayed above the target.

The committee emphasized that the magnitude and duration of the calibration cycle will be determined as new information becomes available, especially given mixed signals on economic deceleration and price levels.

Inflation expectations, as measured by the Focus survey, remain above target at 4.1 percent for 2026 and 3.8 percent for 2027.

The committee highlighted that unanchored expectations increase the cost of disinflation over time, requiring greater and more prolonged monetary restriction.

The Copom's reference scenario projects inflation at 3.9 percent for 2026 and 3.3 percent for the third quarter of 2027.

Risks to the inflation outlook, both upside and downside, have intensified.

Upside risks include prolonged unanchoring of expectations, more resilient services inflation, and inflationary impacts from external and internal economic policies.

Downside risks involve a sharper-than-projected domestic or global economic slowdown, or a reduction in commodity prices.

The committee reaffirmed its conviction that fiscal and monetary policies must be predictable, credible, and counter-cyclical to favor inflation convergence.