Brazilian central bank is expected to start loosening interest rates in March, the first time in nearly two years, as policymakers pursue support for a struggling economy against a backdrop of fading inflation pressures.
The outlook from a Reuters poll of economists is driving increasing confidence that monetary easing is just around the corner after a long period of restrictive policy.
By bringing down borrowing costs, along with specially tailored stimulus measures, household consumption should be more robust and compensate for weak performance from Brazil’s large industrial sector.
Analysts surveyed say these effects raise the odds that Latin America’s biggest economy could grow stronger than currently expected, particularly in the months leading to the October presidential election, when President Luiz Inacio Lula da Silva seeks to renew his mandate.
January rates are probably going to be on hold
Economists largely anticipate that the central bank will maintain its benchmark Selic rate at 15% at its January 28 meeting before any easing takes place.
Thirty-two of the 35 economists surveyed between January 19 and 22 predicted that policymakers will keep rates on hold for the fifth straight meeting.
Two predicted a 25 basis point decrease to 14.75%, while one predicted a greater 50 basis point fall to 14.50%. Only a small percentage expected a quick shift.
Instead, March is the centre of attention. 28 of the 34 economists who responded to a follow-up question regarding the next action by the central bank’s monetary policy committee, or Copom, predicted that the first cut would occur at that time.
Of those, 13 anticipated a more cautious 25 basis point cut, while 15 anticipated an initial reduction of 50 basis points.
If implemented, this would be the first rate cut since May 2024.
In reaction to growing consumer prices at the time, officials had taken a more hawkish approach, alternating between rate increases and protracted periods of keeping borrowing costs high.
Inflation trends open the door
As inflation data have improved, the justification for relaxing has grown.
The central bank’s inflation objective is set at 3% with a tolerance band of plus or minus 1.5 percentage points, and annual inflation finished last year at 4.26%, decreasing further and falling below the 4.5% limit.
According to economists, Copom has leeway to think about initiating a reduction cycle due to the mix of lower inflation expectations, weaker current inflation, and prospects of sustained improvement.
Even if rates stay the same at that meeting, this environment may also result in minor modifications to the wording of the statement that goes with the January decision.
Analysts speculate that by eliminating references to the potential for rate increases to resume, officials may be signalling a change.
To show that rate reductions are getting closer, further wording modifications could be made, such as altering phrases that emphasise prudence, gradualism, or the delayed consequences of monetary policy.
Growth outlook and risks
According to a different Reuters poll, economic growth is predicted to weaken in the first half of the year, which should further help curb inflationary pressures before prices resume momentum near the end of 2026.
The gross domestic product is predicted to expand by 1.8% this year, compared to 2.3% in 2025, according to median projections from 47 economists. The official GDP figures for the previous year will be made public in March.
Risks to the forecast are perceived as being skewed to the upside despite the moderation.
Twelve of the eighteen economists who answered a follow-up question about growth risks stated that expansion could surprise favourably this year, while six believed that the likelihood favoured a slower-than-expected result.
When combined, the surveys point to a shifting balance for Brazil’s central bank, as authorities move cautiously after a protracted era of tight monetary settings, while dropping inflation and slower growth bolster the case for loosening policy.
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