Brazil Central Bank Chief Flags Still Sluggish Convergence of Inflation Expectations

• Brazil's central bank chief Gabriel Galipolo emphasised on Wednesday, August 27, 2025, the need to keep interest rates at a restrictive level, citing a slow convergence of inflation expectations toward the official target. Policymakers have consistently signalled that the benchmark Selic rate, currently at 15%, should remain unchanged for an extended period.
• Expectations and projections from both the central bank and the market are still converging slowly toward the inflation target, requiring a more restrictive monetary policy, Galipolo noted. His remarks came after a weekly central bank survey of economists showed a first decline in inflation expectations for 2027, which had been stuck for six months.
• Inflation expectations for this year and next had already been falling in recent weeks, helped by a stronger local currency amid a global weakening of the U.S. dollar. Notwithstanding, market forecasts remain well above the official 3% target, standing at 4.86% for this year, 4.33% for next year and 3.97% in 2027.
• The central bank last month held its benchmark Selic rate steady after a 450bps tightening cycle kicked off in September. Notably, even with interest rates at 15%, Brazil's labour market continues to show strong resilience, which in some cases is driving stronger demand.

(Source: Reuters)