Brazil central bank hikes rates by 100 bps, confirms same in March

Adds policy and market context

By Marcela Ayres

BRASILIA, Jan 29 (Reuters) - Brazil's central bank raised its benchmark interest rate by 100 basis points for the second straight meeting on Wednesday and signaled another hike of that size in March, leaving the door open for subsequent moves amid mounting inflationary pressures.

The bank's rate-setting committee, known as Copom, lifted the Selic policy rate to 13.25% in a unanimous decision — the first under new the new central bank chief Gabriel Galipolo, who was appointed by President Luiz Inacio Lula da Silva.

The rate increase, in line with the expectations of all 38 economists polled by Reuters, came after the U.S. Federal Reserve held rates steady on Wednesday after a string of cuts, widening the interest rate gap between the world's largest economy and the biggest in Latin America.

To ease concerns about its leadership transition and show its commitment to bringing inflation to target, Brazil's central bank had already signaled in December that it would start 2025 by raising its policy rate by two full percentage points.

However, that aggressive stance in the face of a stronger-than-expected economy and tight labor market has not been enough to anchor inflation expectations, which have continued drifting further from the official target of 3% with a tolerance interval of plus or minus 1.5 percentage points.

Adding to the central bank's challenge, Brazil's currency slipped to a record low last month on concerns about growing public debt, punctuated by turmoil in financial markets after the government's proposed spending cuts disappointed investors.

While market stress has subsided since its December peak, interest rate futures remain elevated.

The Brazilian real has regained some ground to start the year but remains under pressure, trading around 5.86 per U.S. dollar compared to 4.95 a year ago, which has added to inflationary pressure by increasing the cost of imports.

Reflecting the challenging inflation outlook, the central bank raised its inflation forecast for 2025 to 5.2%, up from 4.5% previously.

For the third quarter of 2026, the horizon most influenced by current monetary policy decisions, it projected 12-month inflation of 4.0%.