Copom reduces Selic rate to 13.75% per year citing economic slowdown

The slowdown in economic activity, inflation and the effects of high interest rates on credit and demand led the Central Bank's Monetary Policy Committee (Copom) to reduce the Selic rate by 0.25 percentage points, from 14% to 13.75% per year.

The justifications are set out in the minutes of the meeting released this Tuesday (22). The document highlights that the indicators released since the previous meeting show a gradual moderation in economic activity, especially in the sectors most sensitive to the economic cycle, although the economy remains resilient and the job market remains buoyant.

According to the minutes, the most recent reading of the Gross Domestic Product (GDP), referring to the second quarter of this year, confirmed the slowdown indicated by other indicators. The movement was more intense in economic activities and in demand components that were more sensitive to interest rates.

The Copom reiterated that “the cooling of aggregate demand is an essential element of the process of rebalancing supply and demand in the economy and converging inflation to the target”.

Inflation and credit

The document also highlights that consumer inflation has lost strength in recent months. According to the minutes, both the full index and the average of the underlying measures decelerated. In 12 months, both indicators fell below the upper limit of the target tolerance range, although they still remain above the center of the inflation target.

Another factor cited by the Central Bank was the behavior of the credit market. According to the committee, the most recent data is compatible with a picture of slowing economic growth in an environment of restrictive monetary policy.

In Copom's assessment, evidence of transmission of contractionary monetary policy to economic activity has been gradually accumulating. The panel highlighted that high interest rates have contributed significantly to the disinflation process, but considered that inflation continues to be pressured by demand.

Caution

Despite the recent improvement in indicators, the Central Bank maintained a cautious diagnosis. The minutes indicate that inflation expectations remain above the target in all horizons analyzed. According to the Focus survey cited in the document, projections are at 4.9% for 2026 and 4.3% for 2027.

The committee assessed that "in an environment of unanchored expectations, as is the current case, greater monetary restriction is required and for a longer period of time than would previously be appropriate" to guarantee the convergence of inflation to the target.

The document also highlights the increase in uncertainty in the international scenario, amid geopolitical tensions in the Middle East and doubts about the conduct of monetary policy in the main advanced economies.

Among the factors that could reduce inflation, the Central Bank cited the stronger slowdown in the Brazilian and global economy and a drop in commodity prices.

When justifying the decision, the Copom stated that the 0.25 percentage point cut is compatible with the strategy of inflation convergence towards the target over the relevant monetary policy horizon.

The collegiate highlighted, however, that it will continue to monitor the evolution of the economic scenario to maintain the degree of restriction necessary to control inflation.