Brazil's Central Bank Signals Selic Rate Hikes to 15% in 2025 Amid Economic Concerns

Dec 13, 2024, 11:59 AM

Brazil's Central Bank has raised the Selic rate to 12.25% per year, signaling two further increases of 1 percentage point each in January and March 2025, aiming to curb inflation and stabilize the economy. This decision comes amidst concerns over inflation expectations, a robust economic activity, and uncertainties in the fiscal policy. The market has responded with a rise in the dollar to R$ 6 and an increase in future interest rates, suggesting that the Central Bank's measures might not be sufficient to anchor inflation expectations. Analysts from various financial institutions, including Itaú Unibanco, forecast a potential Selic rate of 15% by the end of 2025, with some not ruling out even higher rates. The rise in interest rates is expected to slow down consumption and investment, impacting sectors like retail and construction, and potentially leading to higher unemployment. The government's fiscal measures and the broader economic environment, both domestically and internationally, will play crucial roles in determining the trajectory of the Brazilian economy in 2025.