The Central Bank of Brazil stated that it is cautious about the effects of higher US trade tariffs on the Brazilian economy and announced that it will continue its policy of lowering inflation expectations.
The bank reiterated its plan to keep interest rates stable for an extended period. The minutes of the last monetary policy meeting stated that the bank halted its interest rate hike cycle and raised interest rates to 15%, the highest level in 20 years, while noting that the 50% tariffs imposed by the US on goods from Brazil could have “significant” effects on some sectors. The minutes also stated that the overall macroeconomic impact remains uncertain and will be shaped by negotiation processes and market risk perception. The bank emphasized that they are closely monitoring the potential impact on the real economy and financial markets and are maintaining a cautious stance amid increasing uncertainty.It was also noted that inflation expectations of many market participants remain above the official 3% target and there has been no significant change in long-term projections. However, it was stated that inflation indicators derived from financial assets have decreased.
“The discussion reinforced our commitment to re-stabilizing inflation expectations and implementing a monetary policy in that direction,” it was stated. The bank stated that the current economic situation necessitates a long-term and tight monetary policy, which is necessary to bring inflation closer to the target.
The central bank stated that although a moderate slowdown in the credit market is observed in a high-interest rate environment, the labor market remains strong, and it is natural to observe mixed signals at turning points in the economic cycle.
Latin America’s largest economy, according to the central bank, is evolving in line with expectations, and the slowdown in growth is necessary to widen the output gap and ensure inflation control.
