Brazil Cuts Selic Rate to 14% as Inflation Eases but Risks Persist

Brazil’s central bank lowered its benchmark Selic interest rate by 25 basis points to 14.00% per year on Wednesday, signaling that inflation is gradually slowing while emphasizing that price pressures remain above the official target.

The Monetary Policy Committee (Copom) said headline inflation has continued to moderate, and underlying inflation indicators have eased to just below the upper limit of the target range. However, inflation expectations remain elevated. According to the latest Focus survey, analysts expect inflation to reach 5.0% in 2026 and 4.2% in 2027, both above the central bank’s target. Copom projects inflation at 3.2% in the first quarter of 2028, which serves as its key policy horizon.

Despite the rate cut, policymakers warned that inflation risks remain tilted to the upside. Key concerns include persistently high inflation expectations, stronger-than-anticipated services inflation, the impact of a weaker Brazilian real, and domestic demand growing faster than the economy’s productive capacity.

The committee also highlighted several downside risks that could support lower inflation. These include a sharper slowdown in Brazil’s economy, weaker global growth driven by trade tensions and oil market disruptions, and declining commodity prices.

Recent economic data point to a resilient economy supported by a tight labor market, although activity varies across sectors. Copom noted that global uncertainty continues to influence monetary policy decisions, citing ongoing conflicts in the Middle East and uncertainty surrounding interest rate policies in advanced economies. The central bank said these factors require emerging markets such as Brazil to remain cautious as financial markets and commodity prices continue to fluctuate.

The decision to lower the Selic rate was approved unanimously by Copom members, including Governor Gabriel Muricca Galípolo and six other committee officials. Policymakers stressed that future interest rate decisions will depend on incoming economic data and inflation trends. The central bank reiterated that the overall size of the current easing cycle will be determined by progress toward bringing inflation back to its target while maintaining economic stability.