Brazil's Central Bank Cuts Rates as Inflation Eases

By Paulo Trevisani and Nicholas G. Miller

Brazil's central bank cut interest rates for the fourth consecutive time as inflation cools and still-elevated borrowing costs weigh on the economy.

The bank's monetary committee, or Copom, cut the Selic benchmark lending rate to 14% from 14.25% on Wednesday, as expected. But the monetary authority indicated that uncertainty around its inflation projections remains higher than usual, especially given conflicts in the Middle East.

"​The global environment remains uncertain due to the lack of definition regarding the armed conflicts in the Middle East and uncertainty surrounding monetary policy in some advanced economies," Copom said. "Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment."

Inflation was 4.5% in the 12 months through mid-June, slowing from 4.8% in the previous period. The central bank targets 3%, with a tolerance range of 1.5 percentage points. Analysts surveyed weekly by the monetary authority forecast inflation ending 2026 at 5%.

High interest rates are weighing on economic activity. Gross domestic product is forecast to expand 2% this year from 2025, slowing from last year's 2.3% annual pace. Unemployment is near historic lows.

Economists worry about high government spending. As of June, Brasilia was spending more than it took in at a pace equivalent to 10% of GDP, according to the central bank. Excluding interest payments, the deficit was 1.2% of GDP. Both metrics are considered too high for an emerging market and a source of inflation that pushes against interest-rate cuts. Upcoming elections in October make it less likely that authorities will rein in spending.

Goldman Sachs Latin America economist Alberto Ramos wrote in a report that "a weak fiscal anchor has increased fiscal risk premia, leading to unanchored short- and medium-term inflation expectations."

Write to Paulo Trevisani at paulo.trevisani@wsj.com and Nicholas G. Miller at nicholas.miller@wsj.com

(END) Dow Jones Newswires

August 05, 2026 18:04 ET (22:04 GMT)