Key facts
- A Reuters poll found 33 of 48 economists expected the central bank to hold the benchmark rate at 13.75% on Wednesday.
- Median forecasts in the Reuters poll showed the rate staying at 13.75% until the second quarter of 2027.
- Government interest payments reached 9% of GDP in the year through September, the highest share since January 2016.
- Household debt hit a record 50.1% of annual income, with repayments consuming a record 29% of income, central bank data showed.
- Capital Economics estimates the real's post-election depreciation could add 0.3 percentage point to headline inflation over six months.
- Consumer prices rose 4.62% in the year through mid-October, Reuters reported.
Brazil's central bank began a two-day meeting on Tuesday, November 3, with its decision due Wednesday, after a market rout that followed the reelection of Luiz Inacio Lula da Silva. The real lost 8.5% against the US dollar and the benchmark Bovespa stock index shed about 18% in the week after the vote, as Lula's victory overturned bets on a win for right-wing challenger Flavio Bolsonaro, Reuters reported.
The committee has cut rates by 25 basis points at each of its last five meetings. A Reuters poll found 33 of 48 economists expected the central bank to hold its benchmark rate at 13.75% on Wednesday, with median forecasts showing rates remaining there until the second quarter of 2027.
Carlos Carranza, an emerging market debt fund manager at M&G Investments, said the central bank's message matters more than whether it holds or cuts rates by 25 basis points. Cutting rates without acknowledging the risks from the real's slide would be damaging, he said, though he did not expect policymakers to do so.
Petar Atanasov, co-head of sovereign research and strategy at Gramercy Funds Management, said he still sees room for fiscal adjustment under Lula but expects it to be slower than investors had anticipated under Bolsonaro. Meaningful adjustment would require curbing the growth of mandatory spending and building support in Congress, he said.
Antonina Tarassiouk, director of international economic analysis at Reams Asset Management, also expects a pause, saying the election has made the inflation outlook more challenging, particularly if oil remains above $100 a barrel. She said downward revisions to an already weak growth forecast for 2027 will be key for the central bank to renew its easing stance.
Prices in Latin America's largest economy rose 4.62% in the year through mid-October. Government interest payments reached 9% of GDP in the year through September, the highest share since January 2016. Household debt hit a record 50.1% of annual income, while repayments consumed a record 29% of income, central bank data showed last week.
Liam Peach, senior emerging markets economist at Capital Economics, estimates the real's post-election depreciation could add 0.3 percentage point to headline inflation over six months. He expects rate cuts to pause rather than reverse, and said the bigger concern is the sharp rise in bond yields, which, if sustained, threatens to tighten financing conditions, compound Brazil's fiscal problems and deepen the slowdown in GDP growth he expects next year.