BC reinforces pause in the hike cycle, but says it 'will not hesitate to raise interest rates if it deems it appropriate'

Summary The Central Bank increased the Selic rate from 14.75% to 15% in order to contain inflation, highlighted the persistence of internal and external risks and emphasized the possibility of further adjustments, if necessary.

The Central Bank (BC) reinforced the interruption in the Selic rate hike cycle, but indicated that it “will not hesitate to raise interest rates” in the event of a worsening of the inflation scenario.

The information is contained in the minutes of the Monetary Policy Committee (Copom), released this Tuesday, 24th.

Last week, the Committee raised the Selic rate from 14.75% to 15% per year.

“The Committee assesses that, after a rapid and firm cycle of interest rate hikes, it is anticipated, as a monetary policy strategy, to interrupt the upward cycle,” the document states. “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.”

The next Copom meeting will be at the end of July.

Arguments for latest increase

In the minutes, the committee argued that the increase in the Selic rate to 15% per year, unanimously, last week, is compatible with the strategy of converging inflation around the target of 3% in 2025.

The BC indicated that the projection for the Broad National Consumer Price Index (IPCA), in the reference scenario for 2025, is 5.2% and, for 2026, 4.5%.

According to the minutes, “the scenario continues to be marked by unanchored expectations, high inflation projections, resilience in economic activity and pressures in the labor market.” “To ensure inflation convergence to the target in an environment of unanchored expectations, a monetary policy at a significantly contractionary level is required for a very long period.”

Effects from abroad

The minutes also mention the external scenario as adverse and particularly uncertain.

The Committee assessed that there were some developments that would allow for an improvement in the international scenario, such as the partial reversal of tariffs, but the prevailing view remained that the international scenario was still uncertain and volatile.

Furthermore, the geopolitical conflict in the Middle East and its possible consequences on the oil market also add uncertainty to the prospective external scenario.