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Brazil interest rates: When will Copom hike benchmark Selic again?

By Fitri Wulandari

Edited by Alexandra Pankratyeva

11:38, 17 August 2022

Magnifying glass focused on the word inflation on Brazil flag background
Will the Central Bank of Brazil (BCB) hike or cut interest rates? Photo: lunopark / Shutterstock

On 3 August, the Central Bank of Brazil (Banco Central do Brasil/BCB) increased its benchmark Selic rate to 13.75%. It is the 12th consecutive interest rate hike since the central bank kicked off its monetary tightening policy in March 2021 to tame runaway inflation.

Will interest rates rise in Brazil again given that there are few, if no, signs that the country’s inflation is going to abate.

In this article, we look into BCB’s interest rate history and examine factors that drive the central bank to make its rate decision. 

What is Copom and the Selic rate?

The Central Bank of Brazil (BCB) and the National Monetary Council (CMN) were created through the 1964 Banking Law. Under the law, CMN was the country’s highest macroeconomic and financial regulatory authority. The BCB serves as the monetary, regulatory and supervisory authority in accordance with guidelines issued by the CMN. 

The main mission of BCB is to keep inflation around the target set by the National Monetary Policy (NMP). Since 1999, the NMP has set the inflation target – a midpoint and its tolerance interval – in terms of the year-over-year increase of the Broad National Consumer Price Index (IPCA), measured by the Brazilian Institute of Geography and Statistics (IBGE).

The inflation rate is the percentage change of the IPCA’s basket cost of products and services during a certain period. The IPCA approximates the average consumption habits of Brazilian families with monthly income of between 1 and 40 minimum wages. Items in the IPCA’s basket include transport, food, education, clothing, housing and healthcare. 

With the system, the inflation rate target in Brazil changes every year. For example, the target inflation rate for 2022 is 3.50% with a tolerance interval of between 2% to 5%. The 2022 inflation target is lower than 3.75% in 2021 and 4% in 2020. 

The responsibility of setting the interest rate policy target to control inflation falls in the hands of BCB’s Monetary Policy Committee (Comitê de Política Monetária/Copom). Copom’s primary monetary policy instrument is the Selic rate.

The Selic rate is the average interest rate charged on daily interbank loans with overnight maturity backed by federal government securities — registered in the Special System of Clearance and Custody (Selic)

Copom is composed of the Governor and Deputy Governors of the BCB. It meets every 45 days to set the target for the Selic rate. Every year, the committee meets eight times. The annual meeting schedule is published in advance by June of the preceding year.

How Selic rate works in practice

Brazil interest rate history

In March 2018, Brazil lowered the Selic rate to 6.5% from 6.75% in February which was the lowest nominal interest rate since the inflation rate target system was introduced in 1999. Inflation ran at 10% and the unemployment rate in the metropolitan area stood at nearly 8% that year. BCB raised interest rates to 14.25% in July 2015 to curb inflation. 

The rate cut came as the country was struggling to come out of recessions that began in 2014 amid falling commodity and oil prices and political turmoil.

Brazil plunged into a deeper recession in 2015 with its economy shrunk by 3.8%,the greatest fall since 1996, after it grew by a mere 0.1% in 2014, according to data from the Brazilian Census Bureau IBGE. 

In 2016, the country’s economy still recorded negative growth of 3.6% in 2016, before recovering to a positive growth of 1% in 2017. 

Copom kept Brazil Selic rate at 6.5% level for more than one-year until June 2019. The committee gradually cut the rate from July 2019 until it stood at 3.75% in March 2020 at the onset of the Covid-19 pandemic, according to Brazil interest rate history. The pandemic with its activity restrictions slowed the global economy and crushed commodity prices, including iron ore and oil, Brazil’s main export commodities. 

From July to August 2020, the BCB had three more rate cuts which brought the Selic rate to 2% in August. The central bank paused the interest rate cut and kept the Selic rate at 2% until March 2021 when Brazil raised interest rate by 0.75 basis point (bp) to 2.75%.

BCB based the rate hike decision on rising commodities prices which started to affect inflation, particularly fuel prices. Copom projected inflation to stand at 5% in 2021 and 3.5% in 2022. 

“GDP ended 2020 growing strongly at the margin, recovering most of its first-semester decline, and inflation expectations rose above target at the relevant horizon for monetary policy. Additionally, inflation projections increased to levels close to the upper bound of the target for 2021. Therefore, the Copom decided to start a process of partial normalization by reducing the extraordinary degree of monetary stimulus,” the committee said in a statement on 17 March.

March 2021 marked the start of the Brazil rate hike period. Over 2021, the BCB had seven consecutive rate hikes which lifted the Selic rate to 9.25% in December. 

Inflation stood at 10.18% in December 2021, exceeding the target of 3.75% for 2021. At the same time, central banks in developed economies, particularly the Fed had indicated plans to tighten monetary policy. 

The BCB had five more consecutive rate hikes since the start of 2022, lifting the country’s interest rate to 13.75% in August. Since March 2021, Brazil has raised interest rates 12 times. 

Selic interest rate target

Key drivers to Brazil interest rate changes

Higher Inflation to stay for longer time

Brazil has been struggling to contain soaring inflation since last year as rising fuel prices inflated transportation costs and housing costs, mainly from liquefied petroleum gas (LPG) used for cooking. 

Inflation had accelerated to 10.38% by January 2022, from 6.10% in March 2021 when the BCB began to hike Brazil interest rates. 


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Russia's invasion of Ukraine at the end of February had boosted already elevated oil and gas prices, increasing inflationary pressures in Brazil. Inflation peaked at 12.3% in April, before stabilising to 11.73% in May and June.

The BCB expected inflation to average 7.2%, 5.3%, and 3.3% in 2022, 2023, and 2024 respectively based on its weekly Focus Survey. The bank’s Focus Survey polls expectations from 140 institutions. 

Analysts also forecast Brazil’s inflation would remain elevated this year.

ABN-AMRO forecast inflation in Brazil to average 10.4% in 2022, up from previous forecast of 7.6%. It is expected to drop to 5.3% in 2023.

Fitch Solutions on its 11 August note predicted Brazil’s inflation to average 10.10% in 2022. 

“That said, high food, fuel and transport costs have been driving headline inflation well above Latin American central banks’ respective targets, while core prices are also climbing in a number of markets. While we expect inflation to ease after peaking across the region in Q322, ongoing supply chain bottlenecks and other lingering price pressures stemming from the Russia-Ukraine crisis will likely keep inflation higher for longer than the market is currently factoring in,” the firm said in the note.

Stronger 2022 GDP

Brazil’s GDP grew 1.7% in the first quarter of this year, compared to 1.6% in the prior year period, according to data from the country’s census bureau on 2 June. 

The Focus Survey for the week of 12 August showed the country’s economy is expected to grow by 2% this year, before slowing to 0.41% in 2023. Brazil’s GDP is forecast to pick up to 1.8% in 2024, according to the survey.

ABN-AMRO forecast Brazil’s economy to grow by 1.3% in 2022, easing to 1.1% in 2023. 

Spanish lender Banco Santander projected a 1.9% GDP growth in 2022, followed by 0.6% contraction in 2023. Meanwhile, Fitch Solutions expected real GDP growth of 0.8% in 2022.

Unemployment rate seen falling

The jobless rate in the second quarter between April and June 2022 dropped to 9.3%, from 11.1% in the quarter from January to March 2022. It was the lowest unemployment rate for a quarter ended in June since 2015 when it stood at 8.4%, according to IBGE on 29 July. 

Public administration, defence, social security, education, human health and social services saw the highest increase in new workers in the second quarter, followed by construction and trade. 

Economic data provider Trading Economics forecast the unemployment rate in Brazil to stand at 8.6% by the end of this quarter and to rise to 10% in 2023. 

Brazil’s unemployment rate hit a record high of 14.7% in the quarter of January to March 2021. 

Brazil interest rates forecast: Will it hike rate again?

With inflation forecast to stay high, but with stronger economic growth and a drop in unemployment rate, will the interest rate rise again in Brazil? Let’s take a look at the latest Brazil interest rate predictions from analysts. 

Market analysts expected the Selic rate to average 13.75% in 2022, according to the Focus Survey, as of 12 August. Analysts forecast Brazil interest rate to drop to 11% in 2023, 8% in 2024 and 7.5% in 2024. 

Trading Economics estimated that Brazil’s interest rates could stand at 13.75% by the end of this quarter. The Selic rate was forecast to trend at 10.50% in 2023 and 8% in 2024, according to its econometric models.

On 4 August, Fitch Solutions revised up its Brazil interest rate forecast to 14% for the end of 2022, from the previous estimate of 13.75%. It expected the BCB to make one final 25bp rate hike in the next meeting in September. 

It predicted BCB to lower Brazil interest rates to 11% in 2023, an upward revision from its previous forecast of 9.75%.

Fitch Solutions revised downward its end-2022 inflation projection to 7.2% year-over-year (YoY) from 8.6%. However, the firm lifted its forecast for 2023 inflation to 5.3% from 4.6% as tax cuts which eased inflationary pressure are set to expire in early 2023. 

“Given that rates will remain relatively elevated over the medium term, this will keep borrowing costs in Brazil high, weighing on the economic growth outlook,” the firm said.

The bottom line

Analysts in this article were of the opinion that BCB would continue to cut the Selic rate on expected inflation softening. Fitch Solutions estimated that the central bank will make the final hike in the September meeting this year. 

The analysts did not offer Brazil interest rate predictions after 2024 due to several variables involved that can influence indicators for Copom interest rate decisions, such as inflation, economic growth rate and unemployment. These variables are difficult to forecast as they depend on other factors such as energy and commodity prices and global economic growth.

Remember that analysts’ views can be wrong. Forecasts should not be used as a substitute for your own research. Always conduct your own due diligence before trading or investing. And never invest or trade money you cannot afford to lose.


Will interest rates go up in Brazil?

Analysts in this article forecast BCB to start lowering its Selic rate in 2023 and 2024 as inflation is expected to moderate. Note that analysts' predictions can be wrong. Always conduct your own due diligence before trading or investing. And never invest or trade money you cannot afford to lose.

Why does Brazil have high interest rates?

Brazil has high interest rates to fight sky-high inflation which peaked 12.3% in April.

How high will interest rates go in Brazil?

As of 4 August, Fitch Solutions forecast Brazil raises interests’ rates to 14% in September’s meeting, followed by rate cuts to bring the Selic rate to average 11% in 2023. It should be noted that analysts' predictions can be wrong.

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