Brazil Central Bank Set for Meek Rate Cut as Inflation Limits Options

Gabriel Galipolo, governor of the Central Bank of Brazil, during a news conference in Brasilia, Brazil, on Friday, Sept. 5, 2025. Galipolo said during a presser on new rules for payment companies that the stricter regulation approved by Brazil's central bank is aimed at fighting organized crime, not financial institutions. Photographer: Ton Molina/Bloomberg Photo by Ton Molina /Bloomberg

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(Bloomberg) — Brazil’s central bank will likely deliver a timid interest rate cut for the second straight meeting as an energy price shock and fresh fiscal stimulus limit a window of opportunity to unwind tight monetary policy.

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Policymakers led by Gabriel Galipolo will lower the benchmark Selic a quarter-point to 14.5% on Wednesday, according to all economists in a Bloomberg survey except one who sees a hold. Central bankers cut borrowing costs at their prior decision in March after keeping them steady at 15% for about nine months.

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Central bankers have signaled there’s been scant improvement in their outlook since their last meeting, when they refrained from giving concrete guidance due to high uncertainty. Board members have room to cut the Selic as activity wanes under the weight of restrictive monetary policy. Still, economists are raising their inflation forecasts further above the 3% target as the Iran war drags on, indicating time could be running out for rate reductions. 

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What Bloomberg Economics Says

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“Brazil’s central bank is set to continue the easing cycle it began in March — but will move carefully with another 25-bp cut. The Middle East conflict has been through various stages of escalation and de-escalation since the last meeting, when the BCB cut the policy rate to 14.75%. Oil prices remain well above pre-war levels, posing a clear risk of faster inflation.”

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— Adriana Dupita, Brazil Economist

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The central bank’s decision will be published after 6:30 p.m. in Brasilia. Just hours earlier, Federal Reserve officials are expected to leave their own interest rates unchanged. 

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Inflation Risks

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Investors will focus on whether Brazil central bankers bring back explicit forward guidance, and also how they assimilate recent consumer price data. 

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Speaking in Washington earlier this month, International Affairs Director Paulo Picchetti indicated policymakers could alter their balance of risks for inflation — a shift that would signal heightened concern about upside consumer price threats without necessarily halting the easing cycle.

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“The central bank’s wiggle room is running out,” said Gustavo Loyola, former bank governor who is currently a partner at consultancy Tendencias. “Prudence at the next meeting in June would recommend that policymakers pause cuts.”

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Annual inflation sped up to 4.37% in early April, the national statistics agency reported on Tuesday. Going forward, economists’ consumer price forecasts have continued to rise and remain above target through 2029. 

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Those estimates are moving higher as the government ramps up stimulus. President Luiz Inacio Lula da Silva’s administration previously exempted more workers from paying income tax and delivered a hefty minimum wage hike.