Brazil central bank concludes that rates-on-hold strategy is appropriate

By Marcela Ayres

BRASILIA, Dec 16 (Reuters) -

Brazil's central bank said on Tuesday it has now "concluded" that holding interest rates for a very prolonged period is appropriate to ensure inflation converges to its target, pointing to a slowdown in the job market and services inflation.

The language marks a shift in the central bank's message and comes amid what many see as groundwork for the start of a monetary easing cycle in the first quarter of 2026.

"At first, Copom (the monetary policy committee) debated whether such a rate was sufficient, then judged that it was, and, in this meeting, concluded that the ongoing strategy ... is appropriate," the minutes of the

December 9-10 meeting

showed.

Policymakers last week kept the benchmark Selic rate at a near two-decade high of 15% for the fourth consecutive meeting.

The bank highlighted its growing confidence in disinflation, noting that the restrictive monetary policy has played "a decisive role". In July, policymakers halted an aggressive rate-hiking cycle that had added 450 basis points to the Selic rate to tame inflationary pressures.

MARKETS WONDER WHEN EASING CYCLE MIGHT START

Most economists surveyed by the central bank on a weekly basis expect a first rate cut in March, though some see scope for a move as early as the January meeting, as signs of economic cooling

mount

in Latin America's largest economy.

The bank said in the minutes that the labor market remains very tight, but is showing early signs of a slowdown. On services inflation, policymakers noted it has also eased somewhat, though it remains relatively resilient.

The central bank also said there is now less global uncertainty compared with a few months ago, citing the end of the U.S. government shutdown and progress in trade talks, while commodity prices remain subdued and global financial conditions favorable.

Felipe Tavares, chief economist at BGC Liquidez, said that all conditions needed to give the bank comfort to start an interest-rate cutting cycle in January were now in place.

"However, the central bank stresses in its conclusion that it will remain vigilant, suggesting the easing cycle will begin in March 2026, which is our call," he added. (Reporting by Marcela Ayres; Editing by Gabriel Araujo)