Brazil holds interest rate at 13.75% amid four sources of inflationary pressure
Key Facts
Brazil's central bank kept its Selic rate at 13.75% a year at the Monetary Policy Committee meeting on November 3 and 4, 2026, according to the committee minutes. The decision to hold came as inflation expectations moved further from target and the bank's assessment highlighted four sources of supply-side pressure. At the same time, economic activity showed a clearer slowdown, leaving the committee to weigh two conflicting forces when assessing price pressures. The committee said weak domestic demand and growth below potential could help contain the pass-through of shocks into broader and more persistent inflation. The decision therefore combines upside inflation risks with domestic factors that could limit their effects.
The bank identified higher oil prices linked to the Middle East war among the sources of pressure, alongside effects associated with the El Niño phenomenon, according to a Reuters report. It also pointed to the impact of ending the 44-hour workweek and to currency weakness driven by uncertainty over domestic policy. These channels stem from commodity markets, climate, labor and the exchange rate, and could affect different costs across the economy. But the bank said weak domestic demand and growth below potential could limit the risk of their pass-through into broader and more persistent inflation. The minutes present this possible constraint alongside the warning about shocks, not as evidence that pressure has dissipated.
In the bank's baseline scenario, its four-quarter inflation forecast is 5.6% in 2026 and then 4.7% in 2027. The forecast falls to 3.5% in the second quarter of 2028, the horizon the bank currently considers relevant for monetary policy. These figures allow comparison of the projected path across years and against the horizon underpinning policy, without changing the minutes' description of the current forecasts. The Focus survey's forecasts cited in the minutes for 2026 and 2027 were 5.2% and 4.8%, respectively. The bank said they had moved further from target since the previous meeting, keeping the anchoring of price expectations central to the committee's assessment.
On activity, the minutes said a set of indicators released since the previous meeting showed a more pronounced slowdown in the economy. According to the bank, the slowdown was concentrated in sectors more closely tied to the economic cycle. At the same time, the labor market remained resilient, despite signs of marginal cooling. This divergence adds to the challenge of reading price pressures: activity is slowing, while the labor market remains firm and inflation expectations are still far from target. The previous meeting's minutes described activity as showing gradual moderation, particularly in more cyclical sectors, while remaining at a resilient level, with a hot labor market; the latest assessment described the slowdown as having become more pronounced.
The bank also listed upside risks that could prolong price pressures, including continued de-anchoring of inflation expectations and the possibility of second-round effects from oil and climate shocks. The list also included persistent services inflation and continued currency depreciation. The minutes added that demand stimulus could push growth above potential, which they included among the upside risks to the inflation outlook. These risks place the persistence of supply shocks in a broader context than their direct effects, including the possibility that they endure or feed through to prices via other channels. The bank's account of weak domestic demand and expected growth below potential stands alongside them as factors that could help contain the pass-through.
Markets are awaiting publication of Brazil's October consumer price index reading on November 12, 2026, according to the schedule of the Brazilian Institute of Geography and Statistics. This comes ahead of the next Monetary Policy Committee meeting, scheduled for December 8 and 9, 2026. The October reading is the latest scheduled release before the meeting, while the bank's forecasts through the second quarter of 2028 provide a longer-term timeframe for assessing inflation. The minutes included specific forecasts for 2026 and 2027 and for the policy-relevant horizon, alongside Focus forecasts that the bank said had moved further from target. Indicators due before the December meeting, including the price reading scheduled for November, remain among the next milestones identified by official sources.