The recent surge in the dollar and ongoing uncertainties about inflation and the global economy prompted Brazil’s Central Bank to accelerate interest rate hikes. The Monetary Policy Committee (Copom) unanimously raised the Selic rate, the country’s benchmark interest rate, by 0.5 percentage points to 11.25 percent per year.

In a statement, the Central Bank noted heightened uncertainty in the United States. While not directly referencing the election of former president Donald Trump, the text cited “the uncertain economic outlook in the U.S., which casts more doubt on the pace of economic slowdown, disinflation, and, consequently, the Federal Reserve’s monetary policy stance.”

Regarding the domestic scenario, the committee said it was monitoring fiscal policy and called for adjustments in public spending. “The Committee reaffirms that a credible fiscal policy committed to debt sustainability, supported by the presentation and implementation of structural measures for the fiscal budget, will contribute to anchoring inflation expectations and reducing risk premiums for financial assets, consequently impacting monetary policy,” the statement said.

Inflation

The Selic rate is the Central Bank’s primary tool for controlling official inflation, as measured by the Broad National Consumer Price Index (IPCA). In September, the IPCA rose to 0.44 percent, bringing the 12-month accumulated inflation to 4.42 percent, edging closer to this year’s upper target limit. For 2024, the National Monetary Council (CMN) has set an inflation target of 3 percent, with a tolerance range of 1.5 percentage points, meaning inflation should stay between 1.5 percent and 4.5 percent.

The Copom statement included the Central Bank’s revised inflation outlook, forecasting the IPCA to reach 4.6 percent in 2024, surpassing the target ceiling, followed by 3.9 percent in 2025, and 3.6 percent for the 12-month period ending in the first quarter of 2026. These projections are based on the Central Bank’s “extended horizon,” which evaluates inflation over an 18-month period.

The basic interest rate is used in government bond transactions within the Special Settlement and Custody System (Selic) and acts as a benchmark for all other interest rates in the economy.