Brazil's central bank left its benchmark Selic rate unchanged at 13.75% on Wednesday, Nov. 4, halting an easing cycle that had cut borrowing costs five times since April. The Monetary Policy Committee, known as Copom, said a worsening external backdrop, a run of supply shocks and rising inflation expectations called for "serenity and caution."

The vote was unanimous among the seven members who sat, led by Governor Gabriel Galipolo. The decision caught much of the market off guard: most economists had expected a cut of 0.25 percentage point, though some institutions had bet on a hold, according to the state news agency Agencia Brasil.

For investors in Asia, the pause shows how far the oil shock tied to the Middle East conflict now reaches into emerging-market policy. Copom explicitly cited tighter policy in advanced economies and higher volatility in commodity and asset prices, the same forces weighing on central banks from Jakarta to Manila. The committee itself describes the Selic as substantially contractionary, and a pause keeps that restraint in place for global bond funds weighing Brazilian debt.

Why Copom stopped cutting the Selic

The committee's statement described an external environment that "became more adverse," pointing to the prolonged armed conflict in the Middle East, its upward pressure on oil and fuel prices, and tighter monetary policy in advanced economies. It said that mix demands caution from emerging markets as asset and commodity prices swing more sharply.

At home, the picture is mixed in a way that makes the central bank's job harder. Copom said activity indicators since its last meeting point to a sharper slowdown, especially in cyclical sectors, and that the labor market, while still resilient, is showing signs of cooling at the margin. At the same time, headline inflation and the average of core measures accelerated and now sit above the upper limit of the tolerance band.

Brazil's target is 3%, with a band of 1.5 percentage points either side, so the ceiling is 4.5%. The IPCA-15, a preview of the official consumer price index, rose 0.32% in October and lifted 12-month inflation to 4.62% from 4.5%, according to Agencia Brasil.

Expectations are moving the wrong way. The central bank's weekly Focus survey of economists put inflation at 5.2% for 2026 and 4.8% for 2027, the statement said, up from 4.9% and 4.3% at the September meeting. Before the war in the Middle East began, market forecasts for this year were around 3.95%, Agencia Brasil reported.

Brazil's inflation forecasts move up

Copom raised its own projection for the second quarter of 2028, the horizon it now targets, to 3.5% in its reference scenario. In September, the comparable projection for the first quarter of 2028 was 3.2%. Its forecast for 2026 inflation rose to 5.6% from 5.2%, and the 2027 forecast climbed to 4.7% from 3.9%.

The reference scenario assumes the real starts at 5.20 per dollar, compared with 5.15 at the previous meeting. The central bank's own PTAX reference rate was 5.4621 per dollar on Thursday, Nov. 5, weaker than either assumption.

The committee listed risks on both sides but said they skew toward higher inflation. On the upside it named longer-lasting drift in expectations, oil and climate shocks to farm output and energy costs, sticky services inflation, a persistently weaker currency, and demand stimulus that pushes growth above potential. Agencia Brasil cited the onset of El Nino as one of the factors complicating the outlook. On the downside, Copom flagged a sharper domestic slowdown, a deeper global downturn from trade and oil shocks, and falling commodity prices.

The statement gave no guidance on the next move. It said the bank will keep watching how domestic fiscal policy affects monetary policy and financial assets, and will maintain "adequate restriction" to bring inflation back to target.

Pressure from industry and markets

The hold drew criticism from business groups. The National Confederation of Industry (CNI) called the decision mistaken and overly conservative, and its president, Ricardo Alban, urged the committee to resume cuts at its next meeting in December, Agencia Brasil reported. A supermarket association economist said growth was likely to come in below 2% this year.

The central bank's latest Monetary Policy Report, published in late September, cut its 2026 growth forecast to 1.8%. Economists in the Focus survey see 1.76%, down from 1.85% four weeks earlier.

The Selic stood at 15%, its highest in almost 20 years, from June 2025 to March 2026. The five reductions since April took off a combined 1.25 percentage points, the last in September. Brazilian assets had been volatile before the decision, which came after the local close. The Ibovespa rose 1.23% to 167,563.47 on Wednesday, ending six straight losing sessions, while the dollar fell against the real after three days of gains, Agencia Brasil reported. Brazil's markets swung sharply after the presidential runoff last month.

The committee is also operating short-handed. The terms of two directors expired at the end of 2025 and replacements have not yet been sent to Congress, Agencia Brasil said, which is why seven members voted.

Next on the calendar are the full October IPCA from the statistics agency IBGE and the central bank's quarterly Monetary Policy Report at the end of November, which will carry revised inflation and growth forecasts before Copom's final meeting of the year in December.