The Central Bank of Brazil raised its benchmark interest rate, the Selic, by 25 basis points to 15% on Wednesday, June 18, 2025. This marks the seventh consecutive increase since the monetary tightening cycle began in August 2024. The decision was unanimous among the bank’s Monetary Policy Committee (Copom) members.
Key Points
Inflation Concerns: The rate hike was implemented in response to persistent inflation and unanchored expectations. The latest Focus survey forecasts inflation at 5.25% for 2025 and 4.50% for 2026, both well above the official inflation target of 3%.
Global Uncertainty: The committee cited an adverse and uncertain global environment, particularly related to U.S. economic policy and outlook. They noted that global asset volatility has altered financial conditions, requiring caution from emerging market economies amid escalating geopolitical tensions.
Domestic Strength: Despite global uncertainties, domestic economic activity and labor market indicators continue to show strength, though with some moderation in growth. The unemployment rate fell to 6.6% in the February-April quarter, the lowest figure for this period since 2012.
Future Outlook: The committee anticipates a pause in the interest rate hiking cycle to evaluate the accumulated effects of the monetary adjustment and determine whether maintaining the current rate for a sufficiently long period will ensure inflation converges toward the target.
However, they emphasized that they “will not hesitate to proceed with the rate hiking cycle if appropriate”.
Impact and Reactions
Market Expectations: Prior to the decision, market expectations were divided, with some analysts predicting a pause in the rate hike cycle. The decision to raise rates caught some market participants off guard.
Presidential Criticism: The successive rate increases have angered left-wing President Luiz Inacio Lula da Silva, who argues that high interest rates stifle growth. He had expressed hopes that the central bank would start lowering rates soon.
Conclusion
The Central Bank of Brazil’s decision to raise the Selic rate to 15% reflects its commitment to controlling inflation despite the challenges posed by the global economic environment and domestic political pressures. The anticipated pause in the rate hike cycle will allow the bank to assess the impact of its tightening measures on inflation and economic activity.
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