Brazil’s Monetary Policy Committee (Copom) kept the Selic benchmark interest rate at 13.75% on Wednesday, pausing its easing cycle. Analysts said the next move may depend less on the central bank’s immediate guidance and more on the economic plans announced by President Luiz Inácio Lula da Silva’s government.

The decision was widely expected after the dollar strengthened and inflation expectations worsened following the second round of elections. A rate cut in December remains possible, but analysts said it would depend on the government’s announcements on economic policy.

Copom cited a deteriorating international outlook, including prolonged conflicts in the Middle East, as well as domestic inflation. Forecasts compiled in the central bank’s Focus survey put inflation above its 4.5% target ceiling, at 5.2% for 2026 and 4.8% for 2027.

Some economists and business representatives argued that the central bank missed an opportunity to continue cutting rates. They pointed to signs of slowing economic activity and said the recent rise in inflation was tied largely to temporary supply shocks, including higher food prices.

André Braz, who coordinates price indexes at Ibre/FGV, said the government should quickly clarify its short-term measures and its economic policy for the medium and long term. A credible outline, he argued, could help make further rate cuts possible. Braz added that a Selic rate of 13.5% would already be high even with worsening inflation expectations.

Rafael Cardoso, chief economist at Daycoval, said the hold was expected and that Copom’s statement offered little indication of its next decision. He viewed the lack of a firm commitment as appropriate given uncertainty and volatility in the exchange rate, leaving room for the central bank to resume cuts later.

Adriana Dupita, a Bloomberg emerging-markets economist, said holding rates allows the central bank to demonstrate its commitment to the inflation target without adding to market volatility. She said the central bank’s role is to respond to the effects of fiscal policy on inflation, rather than prescribe what that policy should be.

Dupita also said the market reaction to Lula’s re-election had been excessive, but that pressure on the exchange rate and shifts in the interest-rate curve can worsen the fiscal outlook. She said a rapid, credible announcement of the government’s plans could help break that cycle.

Other business figures criticized the decision to keep rates high. Felipe Queiroz, chief economist at the São Paulo Supermarkets Association, said high real interest rates favor the financial sector while weighing on commerce, services, industry, household consumption and investment. Fiesp president Paulo Skaf called the monetary tightening excessive, arguing that borrowing costs constrain business investment and that household and corporate debt is worsening.

Sources: Folha Mercado.