Brazil's central bank says interest rates must stay high for longer than it once thought, because inflation expectations have drifted further from its 3% target, according to minutes of its meeting on 3 and 4 November released on Tuesday.
The minutes are the record of the meeting on 3 and 4 November, when the rate committee known as Copom held the Selic at 13.75% a year. All seven members voted to pause after five quarter-point cuts since March, which took the rate down 1.25 points from 15%.
WHY THE CUTS STOPPED
Twelve-month inflation rose from 4.22% in August to 4.58% in September, above the 4.5% ceiling. The target is 3%, with a tolerance of 1.5 points either side.
In an English translation of the minutes, every member agreed that "in an environment of unanchored expectations, as is the case at present, a greater and longer monetary restriction is required than would once have been appropriate."
When the committee met, economists in the central bank's weekly Focus survey expected inflation of 5.2% in 2026 and 4.8% in 2027. The bank's own forecast is 5.6% for 2026 and 4.7% for 2027, and it sees 3.5% only in mid-2028.
FOUR SUPPLY SHOCKS
Copom said it should not react to the first wave of such shocks. It will watch for second-round effects, where costs spread into wages, and "react firmly" if they appear.
A SLOWING ECONOMY
The committee sees a "sharper moderation" of activity, mainly in cyclical sectors, and the bank called weaker demand "essential" to bringing inflation down. Unemployment is still historically low, but job growth is slowing, and pay still rises faster than productivity. The bank also warned that fading fiscal discipline could lift the neutral rate.
Copom set no timetable for resuming cuts.
THE TGB VIEW
The TGB market profile for Brazil shows bank-led prudential conglomerates holding R$16.7tn (US$3.2tn) of assets in June 2026, about 142% of GDP, with Itaú Unibanco, Banco do Brasil, Caixa Econômica Federal, Bradesco and Santander Brasil holding two-thirds of banking-segment assets. The big lenders start from very different returns: in the TGB Bank Rankings, Itaú Unibanco earned 21.9% on equity in 2025, Bradesco 13.3% and Banco do Brasil 7.2%, while shop surveys show a turn, especially in credit-driven sectors, where loan rates stay very high. The next test is Copom's decision on Wednesday 9 December.
Related: Banco Central do Brasil cuts Selic rate 25 bp to 14.00% as Copom extends easing cycle
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