Selic rate cut to 14.00 percent despite unanchored inflation
The Central Bank of Brazil cut its benchmark Selic rate to 14.00 percent in a unanimous decision at its August meeting. Policy makers cited a gradual moderation in economic activity alongside lingering unanchored inflation expectations.
Unanimous vote for lower benchmark
The Central Bank of Brazil reduced the Selic rate to 14.00 percent in a unanimous vote by Governor Gabriel Muricca Galípolo and six board members.
Copom updated its baseline inflation projections to 5.1 percent for 2026, 3.8 percent for 2027, and 3.2 percent for the first quarter of 2028, which serves as the current relevant policy horizon.
Market expectations gathered by the Focus survey stand above target at 5.0 percent for 2026 and 4.2 percent for 2027.
Domestic economic activity shows gradual moderation across supply and demand components, while the labor market remains tight with real wage growth continuing to outpace productivity gains.
Fiscal coordination and asymmetric risks
Copom stressed that unanchored inflation expectations demand a tighter monetary policy stance for a longer duration.
Committee members highlighted that fiscal discipline, structural reform efforts, and public debt stabilization are essential to prevent an increase in the economy's neutral interest rate.
They reaffirmed that monetary and fiscal policies must work in harmony to lower disinflation costs.
Upside risks to inflation dominate, driven by resilient services inflation, potential second-order supply shocks in oil and food, and persistent currency depreciation.
Cautious easing under heavy fiscal shadow
The Selic cut offers cautious relief, but easing remains constrained by unanchored inflation expectations.
Copom rightly notes that monetary policy cannot anchor price stability without fiscal discipline.
Without credible structural alignment, further rate reductions risk stalling prematurely.