On 29 January the monetary policy committee (Copom) of Brazil’s central bank (BCB) raised the country’s benchmark interest rate to 13.25%, in a second consecutive 100-basis-point increase.
Analysis:
This was the first interest rate decision under the presidency of Gabriel Galípolo, who took over as BCB chief from Roberto Campos Neto on 1 January. In the latter half of 2024, Galípolo used his media appearances to suggest that he would continue Campos Neto’s tight monetary policy approach, and this latest Copom decision has seen these promises being delivered. Last year some media outlets suggested that markets were mistrustful of Galípolo, given his proximity to President Luiz Inácio Lula da Silva, whose government prioritises high social spending and who had frequently accused Campos Neto of suffocating the economy with high interest rates. With an ally at the helm of the monetary policy authority, Lula is unlikely to criticise the BCB in 2025 and 2026 and has signalled that he will back measures aimed at taming inflation.
- The tone of the latest Copom statement did not significantly differ from the interest rate announcements in 2024. The committee highlighted internal and external considerations that influenced the Copom’s unanimous decision to continue the rate hike cycle, such as uncertainties over the US economy, concerns over developments in the government’s fiscal policy, and inflationary pressures arising from economic activity and the labour market.
- The latest Copom forecasts project annual inflation to close this year at 5.20%, which would be up from 4.83% in 2024. The committee expects the annual inflation rate to come down to 4.0% in the third quarter of 2026.
- On 24 January the national statistics institute (Ibge) released its mid-month inflation figures, which showed an annual inflation rate of 4.50% for the 12 months until mid-January, down from an annual rate of 4.71% registered for mid-December. The Ibge attributed the slowdown of inflation in mid-January to a monthly decrease in household electricity bills, resulting from a temporary discount known as the ‘Bônus de Itaipu’, but did not signal notable changes in the main drivers of inflation, such as rising food prices.
Looking Ahead: Brazil’s institutional relations minister, Alexandre Padilha, said in an interview earlier this week with national daily Folha de São Paulo that “there is no silver bullet” to bring down inflation. When questioned about future policy actions, Padilha tried to shift the focus to the government’s past efforts to boost food production.
