Banco Central do Brasil Raises Selic Rate by 100 Basis Points to 12.25%

Brazil's Monetary Policy Committee, known as Copom, raised the Selic benchmark interest rate by 100 basis points to 12.25% at its December meeting, delivering the largest increase of its current tightening cycle. The decision was published on Wednesday by the Banco Central do Brasil and marked an acceleration from the 50-basis-point increase delivered in November.

Copom also signalled its intention to raise rates by a further 100 basis points at each of its next two scheduled meetings in 2025.

CURRENCY WEAKNESS AND FISCAL PRESSURES

The committee cited a further de-anchoring of inflation expectations, higher inflation projections, stronger-than-expected activity and a wider output gap, and said the market reaction to the government's recent fiscal announcement had pushed up risk premia, inflation expectations and the exchange rate.

Brazil entered its current tightening cycle after a period of rate reductions that had taken the Selic to a lower level earlier in 2024.