Uncertainties caused by the United States tariff and the expectations of inflation not moving to the goal are elements that made the Central Bank (BC) see the basic interest rate at high levels for a “long time period”.
The explanation is in the minutes of the last meeting of the BC Monetary Policy Committee (Copom), released on Tuesday (5). The board decided, on Wednesday (30), maintain the basic rate of the economySelic, at 15% per year, higher level since July 2006 (15.25%).
The inflation target that should be pursued by the BC is 3%, with a tolerance interval of 1.5 percentage point up or down. That is, the lower limit is 1.5% and the upper is 4.5%.
Currently, official inflation, measured by the National Consumer Price Index (IPCA), is 5.35% in 12 months.
>> Follow the channel of Brazil agency on WhatsApp
In the document that underlies the decision of the Copom, The collegiate states that the scenario of inflation remains challenging in various dimensions and cites the external environment, “more adverse and uncertain”.
“The elevation by the United States of commercial tariffs for Brazil has relevant sectoral impacts and still uncertain aggregate impacts depending on how the next steps of negotiation and the risk perception inherent in the process will be forwarded,” the minutes record.
>> Click here and read more about the tariff, in Brazil agency
Last Wednesday’s meeting ended hours after the US government imposed 50% tariff in large part of the items that Brazil sells to Americans.
For Copom, this uncertainty makes the collegiate “preserve a caution stance.”
Added to international uncertainty, the copom emphasizes that the expectations of inflation in Brazil are disagreeed, that is, not moving to the center of the Government’s goal.
The minutes recalls that the increase in food price loses pace, but points out that in the first quarter of 2027, the 12 -month IPCA projected is 3.4%, still above the center of the goal.
“Inflation nuclei have been maintained above the value compatible with the achievement of the goal for months, corroborating the interpretation of an inflation pressured by the demand and requiring a contractionist monetary policy for a very prolonged period,” says the collegiate.
Internal factors
In describing the internal scenario, the Central Bank directors recognize that the interest rate climbing, which began in September 2024, already produces cooling effects on the economy.
“The credit market, more sensitive to financial conditions, has shown a clearer moderation,” says the minutes, adding that the private consignment “have had a less impact of what was expected by many market participants.”
Private consignment is the so -called worker credit, sanctioned at the end of Julywhich aims to cheapen the credit for private initiative employees with a formal contract (CLT) and drivers and application delivery.
Copom recognizes, however, that the labor market is still warmwith a minimum occupation and income tax rate of workers, which feeds inflation.
“The labor market follows dynamic. From a income point of view, with real gains consistently above productivity, and employment, with significant reduction in the unemployment rate for historically low levels, the job market has given great support to consumption and income,” says the BC.
The directors also pointed to challenges caused by the government’s fiscal policy (public spending).
“The Committee reinforced the view that the scrutiny in the effort of structural reforms and fiscal discipline, the increase in directed credit and the uncertainties on public debt stabilization have the potential to raise the economy’s neutral interest rate, with deleterious impacts on the power of monetary policy and, consequently, on the cost of deflation in terms of activity.”
BC directors point out that the current moment is “interruption in the high interest cycle to examine the accumulated impacts of the adjustment already performed, as they are observed, and then evaluate if the current level of the interest rate, considering its maintenance by a very prolonged period, is sufficient to ensure the convergence of inflation to the goal”.
Monetary policy
The Selic rate is decided every 45 days by Copom and consists of the main way for the institution to make inflation converge to the goal. Since September 2024, the IPCA has been above the target ceiling (4.5%).
The rising trajectory of interest began in September last year, Selic left 10.5% and, gradually, reached the current 15%.
One face of high interest rate is the contractionist effect, which fights inflation. Raising the rate makes loans more expensive – whether for individuals or companies – and discourages investmentssince it may be worth keeping the money invested, yielding high interest rates than risking productive activities.
This set of effects brakes the economy. Hence comes the negative reflection: less activity tends to be synonymous with less employment and income. According to the BC, Selic’s effect on inflation takes six to nine months to become significant.
