Brazil’s central bank on Wednesday ended a run of interest rates cuts that began in March and kept borrowing costs on hold as it faced the prospect of higher inflation following President Luiz Inacio Lula da Silva’s reelection.
The central bank’s rate-setting committee, Copom, unanimously voted to keep its benchmark Selic rate at 13.75%, as expected by 33 of 48 economists polled by Reuters.
The statement offered little guidance on the central bank’s next steps, with policymakers pledging to keep monetary policy “adequately restrictive” to return inflation to target.
Policymakers said inflation risks appeared tilted to the upside but they also noted the “more pronounced deceleration of domestic economic activity.”
The challenging outlook required “serenity and caution” when deciding on how to proceed with monetary policy, the statement added.
The decision follows a sharp fall in the value of Brazil’s currency as well as the country’s stock market after Lula’s surprise turnaround victory over senator Flavio Bolsonaro in an election runoff on October 25.
Immediately before the election, investors were largely pricing in two consecutive 25-basis-point rate cuts, one in November and another next month.
In a sign of the shift in expectations caused by Lula’s ballot box win, options contracts traded on Brazil’s exchange earlier on Wednesday suggested investors were expecting rates to remain unchanged.
