Brazilian Central Bank keeps interest rates stable in last policy meeting of the year

Roberto Campos Neto, Brazil's central banker. Photo: José Cruz/TBR

To no one’s surprise, the Brazilian Central Bank has kept the Selic benchmark interest rate at 13.75 percent — adopted back in August after the steepest monetary tightening cycle in Brazil since 1999, when the country adopted its current system of inflation targets.

Still, the bank’s Monetary Policy Committee made it clear that “future steps can be adjusted and will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.”

In a statement on Wednesday, the Central Bank repeated warnings about fiscal risks and economic uncertainty still hanging over Brazil. “The current scenario, particularly uncertain on the fiscal side, requires serenity when evaluating risks. The Committee will closely monitor future developments in fiscal policy and, in particular, its effects on asset prices and inflation expectations, with potential impacts on the dynamics of future inflation.”

It was the bank’s last policy meeting of the year, and confirms the markets’ median forecast for the year-end Selic rate, which has been set at 13.75 percent since half-way through the year.

On Friday, Brazil will know its official November inflation rate. The consensus, per financial market data firm Refinitiv, is a monthly bump of 0.55 percent, which would be less expressive than the October rate.

In another indication that Brazil’s inflation is not slowing down at the desired pace, the IPCA-15 price index (a mid-month reliable predictor of official inflation) came in at 0.53 percent for November, pushed up by food and transportation costs.

Itaú, Brazil’s biggest private bank, projects a bump of 0.52 percent in consumer prices in November. “The inflation reading should be influenced by home food prices (especially the in natura segment), gasoline, and ethanol. On the other hand, personal hygiene items must present some deflation, thanks to Black Friday discounts,” the bank said in a report to clients.