Brazil’s central bank is expected to maintain the Selic rate at 15%

President Donald Trump’s anticipated 50% tariff on Brazil could undercut the central bank’s extended high-interest rate strategy.

The American president is expected to levy the taxes against Brazil this week. Still, with Gabriel Galipolo at the helm, Brazil’s central bank will likely leave the Selic rate unchanged at 15% on Wednesday, according to Bloomberg.

The central bank stated previously that it would like to maintain high rates

Analysts also believe Brazil will maintain its rates despite the tariff threat. For instance, analysts led by Cassiana Fernandez, head of economic research for Latin America at JPMorgan, remarked, “Any decision other than keeping rates unchanged at 15% would be a surprise.”

Limited public commentary has also suggested a strong consensus among board members on sustaining elevated interest rates. Most central bankers support high rates to rein in inflation, which is expected to stay above 3% target through 2028. However, unemployment rates are still growing, and there are signs of a possible economic recession. Besides, the looming threat of a trade war with the US, possibly starting August 1, adds further uncertainty and calls for a more cautious policy approach.

Earlier, Brazil’s central bank had communicated plans to hold rates high for an extended time, but that was before the U.S. President said he would slap a 50% tariff. While a rate shift is unlikely, the development may alter the tone of the central bank’s rhetoric.

The bank has raised its benchmark rate by 4.5 percentage points for over seven consecutive moves, then paused in June to observe the impact on inflation. In the same period, other Latin American central banks, such as those in Mexico and Chile, chose to lower interest rates.

President Luiz’s ratings rose this week, with the US officials’ engagement in negotiations

Trump has vowed to implement a 50% tariff on Brazilian exports in response to what he claims is a politically motivated “witch hunt” against former president and close ally Jair Bolsonaro.

However, US officials appear more open to discussing better terms this week, which quickly lifted President Luiz Inácio Lula da Silva’s approval ratings, improving his 2026 reelection prospects. However, some investors worry President Lula’s growing support could lead to fiscal deterioration, warning of a weaker currency and inflation.

In mid-July, annual inflation rose to 5.3%, while economic activity declined in May, accelerated by downturns in sectors such as industry and retail.

Caio Megale, XP Inc.’s chief economist, also noted that while the exchange rate outlook is still highly uncertain, the potential political fallout from US tariffs cannot be ruled out.

Additionally, Iana Ferrao, an economist at BTG Pactual, argued that Brazil’s central bank will likely recognize emerging risks to the domestic economy. He stated, “Increased regulatory uncertainty tends to negatively affect investment and consumption decisions, especially in an environment of slowing activity, restricted credit, and high financial costs.” 

On Wednesday, policymakers will post their rate decision and a corresponding statement on the central bank’s website after 6:30 p.m. Brasília time. The release will follow the Federal Reserve’s likely decision to hold rates steady while assessing the potential impact of tariffs on inflation.

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