- 25bp increase in the Selic rate with a hawkish statement and unanimous decision, with significant revisions in projections.
- Domestic scenario: Highlight the revision of the output gap, which moved into positive territory and “has supported greater resilience in services inflation.”
- External scenario: The Central Bank chose to emphasize Powell’s tougher speech today, rather than the larger-than-expected cut in the Fed Funds rate, even though global activity slowdown poses a downside to inflation. (“The external environment remains challenging, due to the turning point in the economic cycle in the United States, raising greater doubts about the pace of the slowdown, disinflation, and consequently, about the Fed’s stance.”)
- Risk Balance: Asymmetrically tilted to the upside. Although it did not change risks within the risk balance, it removed the cautious approach regarding the persistence of market variables and inflation expectations.
- Inflation forecasts:
- IPCA 2024: 4.3% (from 4.2% in July) with a downward revision in administered prices.
- IPCA 2025: 3.7% (from 3.6% in July)
- IPCA Mar/26 (relevant horizon): 3.5% (from 3.4% in July)
- The pace of future adjustments and the total magnitude of the cycle: The Central Bank now places significant weight on economic activity via the output gap (in the previous meeting, the next steps in monetary policy were related to the re-anchoring process of inflation expectations), thus its reaction function is now composed of:
- inflation dynamics, especially components more sensitive to economic activity and monetary policy,
- inflation projections,
- nflation expectations,
- output gap,
- risk balance.
- It is important to note that in the reference scenario (using Focus, which includes a 100bp rate hike cycle), the Central Bank remains above the target (3.5%) in March 2026, with communication taking an even tougher tone than the decision itself. Therefore, after today’s decision, we revise our scenario to a 150bp hike cycle (up to 12%).
