Brazil’s central bank is increasingly worried about rising core inflation and unanchored inflation expectations, and is refusing to signal its next interest rate move ahead of its upcoming policy meeting, Director Paulo Picchetti said on Thursday in Washington D.C.
Policy path remains open and data-driven
Picchetti said the bank has not defined the “final adjustment” to monetary policy and will not offer guidance before the next decision, scheduled for April 29.
He cited high uncertainty in the economic outlook, noting that “many developments” could occur before the committee meets again. In this context, the bank’s decisions will remain strictly data-dependent, with officials tracking both price indicators and market expectations.
Picchetti also highlighted the difficulty of separating temporary price shocks from longer-term trends, which complicates the assessment of how persistent current inflation pressures may be.
Inflation expectations under pressure
According to the director, the loss of anchoring in inflation expectations appears linked to doubts about Brazil’s fiscal consolidation path. Recent inflation readings have come in above earlier projections, reinforcing those concerns.
Official data show headline inflation accelerated to 4.14% in March from 3.81% in February, moving closer to the upper end of the central bank’s target range. Transport and food prices were the main drivers, helped by higher energy costs tied to tensions in the Middle East.
Core inflation, which strips out more volatile components, reached 4.7% in March, suggesting that price pressures are becoming broader-based rather than confined to a few items.
Market implications of no forward guidance
By withholding forward guidance, the central bank is adding a layer of uncertainty for traders and other market participants in the run-up to the April 29 meeting. Positions based on a smooth, pre-set path of rate cuts now carry greater risk.
At its March meeting, the bank already signaled a more cautious stance when it cut the benchmark Selic rate by 25 basis points to 14.75%, a smaller move than many in the market had expected.
With the bank insisting on a data-reliant approach, upcoming inflation prints, retail sales, and labor market reports are set to gain outsized importance as signals for the next policy step.
External risks and Middle East conflict
Picchetti warned that a shift in global risk sentiment could affect Brazil’s budget cycle and domestic financial conditions.
He said the bank does not yet have a clear assessment of the conflict involving Iran or its potential impact on Brazil’s risk profile, but acknowledged that the situation adds to overall uncertainty, particularly through energy and commodity channels.
Higher oil and fertilizer prices remain a key concern for Brazil’s inflation outlook, even as some external factors could be mildly supportive. The International Monetary Fund recently raised its 2026 growth forecast for Brazil to 1.9%, partly on expectations that the country could benefit from stronger commodity export prices.
Domestic activity slowdown and labor market strain
Domestically, the central bank expects economic activity to cool in the coming months, Picchetti said, even as the labor market remains tight.
Brazil’s unemployment rate edged up to 5.8% in the three months through February but is still close to historic lows. At the same time, household balance sheets are under pressure: a record 80.4% of families reported some form of debt in March.
Picchetti noted that part of the recent increase in household income is likely to be used to pay down loans, which could limit future consumer spending and dampen growth.
Early move compared with global peers
Picchetti concluded by stressing that Brazil’s central bank acted ahead of many of its international counterparts in adjusting monetary policy when inflation pressures first intensified.
That early response, he suggested, gives the institution some credibility and flexibility, but he underlined that the next steps will depend on how inflation, expectations, and fiscal conditions evolve in the coming weeks.
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