BC signals end of interest rate hike, but will keep it at 15% for a long time

The Central Bank released this Tuesday (24) the minutes of the last meeting of the Monetary Policy Committee (Copom) which, last week, raised the basic interest rate from 14.75% to 15% per year , the highest level in the last 20 years. In the document, the monetary authority signals that the Selic rate hike cycle may have come to an end, but points out that it will remain high for a prolonged period to control inflation, which remains resistant above the target at 5.32% in 12 months.

This is the first time since the beginning of the current monetary tightening cycle, which began in March last year, that Copom has adopted clearer communication about a possible interruption in the hikes.

“If the expected scenario is confirmed, the Committee anticipates an interruption in the interest rate hike cycle to examine the accumulated impacts of the adjustment already made, yet to be observed, and then assess whether the current level of the interest rate, considering its maintenance for a very long period, is sufficient to ensure the convergence of inflation to the target”, the minutes state ( see in full ).

According to the most recent Focus Report, released on Monday (23), the financial market already projects that the Selic rate should remain at 15% until the end of this year , with the possibility of starting to be reduced only in 2026.

The scenario reflects the assessment that the effects of the current interest rate level have not yet been fully felt in the economy, and that the Central Bank prefers to adopt a conservative stance to ensure that inflation returns to the target, set at 3% for 2025, with a tolerance of 1.5 percentage points above or below.

Despite the more moderate tone, the committee reinforces that it remains attentive to the risks and that it does not rule out new increases if it considers it necessary.

“The Committee emphasizes that it will remain vigilant, that future monetary policy steps may be adjusted, and that it will not hesitate to continue the adjustment cycle if it deems it appropriate,” it noted in the minutes.

According to the document, the current monetary policy needs to remain at a “significantly contractionary” level for a very long period of time to ensure inflation control, especially in a scenario in which economic agents’ expectations remain unanchored — that is, above the target established by the National Monetary Council.