Business · Economy · 15 hrs ago
Brazil’s central bank may face a choice between inflation and weak growth
A columnist says Brazil’s central bank may have to choose between fighting inflation and protecting the economy next year.
The bank kept its benchmark interest rate at 13.75% on Wednesday, November 4.
Inflation expectations are worsening, and one group of economists cited by the columnist expects Brazil’s IPCA inflation index to reach 5.9% in 2027.
At the same time, the services purchasing managers’ index fell to 44.5 in October, below the 50 mark that signals contraction.
The columnist argues that higher rates could cause serious harm to businesses and households, which are already facing financial strain.
If that risk makes rate increases too costly, the bank may allow inflation to rise slowly rather than tighten policy.
Brazil’s central bank may face a difficult choice in 2027 between raising interest rates to curb inflation and avoiding further damage to weak economic activity.
The article says inflation expectations are worsening and cites an estimate that Brazil’s IPCA inflation will reach 5.9% in 2027.
The central bank kept its benchmark interest rate at 13.75% on Wednesday (4).
Economic growth is expected to be close to zero in 2027, while the services purchasing managers’ index fell to 44.5 in October.
The article argues that further rate increases could harm businesses and households, potentially leading the bank to tolerate a slow rise in inflation.
- Who
- Brazil’s central bank, through its Monetary Policy Committee (Copom).
- What
- It may have to choose between raising interest rates to control inflation and avoiding further harm to economic activity.
- When
- The choice is expected to arise over the course of 2027. Copom kept the rate unchanged on Wednesday (4).
- Where
- Brazil.
- Why
- Inflation expectations are worsening, while growth is expected to be close to zero and further monetary tightening could damage businesses and households.
Inflation-control priority
Economic-activity priority
Interest rates
Inflation-control priority
Raise rates to address the inflation objective.
Economic-activity priority
Avoid a rate-hike cycle to support economic activity.
Economic trade-off
Inflation-control priority
Prioritize the inflation objective despite weak growth.
Economic-activity priority
Prioritize smoothing the economic cycle, with growth expected to be close to zero in 2027.
President Lula decided to reverse the direction of public spending, according to the article.
Lula reassumed the presidency while the Selic rate stood at 13.75%.
Brazil’s services PMI was 49.2.
The services PMI fell to 44.5, a level below 50 that signals contraction.
Copom kept the interest rate at 13.75%.
- Interest rate
- 13.75%, maintained by Copom
- Inflation estimate
- IPCA at 5.9% in 2027, according to the BTG team cited
- Growth outlook
- Close to zero in 2027
- Services PMI
- 44.5 in October, down from 49.2 in September
- Fiscal spending comparison
- Primary spending rose 21% while the country’s economy expanded 11%