Brazil’s Central Bank reduces basic interest rate to 11.25% per year

The Brazilian Central Bank's decision to cut interest rates for the fifth consecutive time reflects the behavior of prices. The Monetary Policy Committee (Copom) unanimously voted to reduce the Selic rate, the economy's benchmark interest rate, by 0.5 percentage points to 11.25 percent per year.

In a statement, Copom expressed its intention to continue lowering the Selic rate by 0.5 percentage points in upcoming meetings. During the press conference on the December Inflation Report, Central Bank Head Roberto Campos Neto pointed out that when Copom mentions "next meetings," it refers to the subsequent two meetings. This suggests that the rate cuts will likely persist until at least May.

"If the expected scenario is confirmed, the members of the committee unanimously foresee a reduction of the same magnitude at the upcoming meetings and assess that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process," the statement reads. Regarding the cessation of the rate cuts, the agency indicated that this will depend on the "longer-term" economic outlook.

Inflation

The Selic rate is the Central Bank's main instrument for keeping official inflation under control, as gauged by the Broad National Consumer Price Index (IPCA). In 2023, the indicator stood at 4.62 percent. Following consecutive declines in the first half of the year, inflation experienced a resurgence in the latter half.

The index concluded the previous year below the inflation target ceiling of 4.75 percent. In 2024, the National Monetary Council (CMN) has established a 3 percent inflation target with a tolerance margin of 1.5 percentage points. Consequently, the IPCA is expected to range between 1.5 percent and 4.5 percent for the year.