Brazil's central bank held its target rate unchanged at 13.75pc on Wednesday, citing "prolongation" of conflicts in the Middle East and their impacts on energy prices and more restrictive monetary policy in advanced economies.
Policymakers paused after cutting by a quarter point in September, a fifth consecutive cut that brought the rate down from a cyclical high of 15pc in March, where it had held since June 2025, as policymakers battled to bring down inflation. The target rate at 15 was its highest rate since 2006.
"The external environment has become more adverse given the prolongation of armed conflicts, with upward impacts on oil and derivatives, and a more restrictive monetary policy in advanced economies," policymakers said in their statement. "Such a scenario requires greater caution on the part of emerging economies."
The bank cited "gradual moderation of economic activity, mainly in more cyclical sectors, although still at a resilient level, and a heated labor market."
Policymakers warned that inflation may top the target of 5.2pc for this year and 4.8pc for 2027. It also cited concerns over higher prices for crude, due to supply effects from the conflicts in Middle East, and electricity, due to climate effects on agriculture.
The Brazilian real depreciated more than 10pc to as low as R5.4/$1 after Luiz Inacio Lula da Silva was reelected president on 25 October, defeating right-wing challenger senator Flavio Bolsonaro. The real had strengthened about 5pc in the last month before voting and was little changed over the past 12 months.
Brazil's inflation accelerated to an annual 4.58pc in September led by higher transport costs fueled by the US-Iran war, from 4.22pc in August, after falling the prior two months.
Brazil's GDP growth rose to an annual 1.9pc in the second quarter from 1.8pc in the previous quarter, according to IBGE data.
Concerns about a lack of fiscal adjustment have intensified amid uncertainty over the choice of a new finance minister and Lula's re-election and his tax policy for his fourth mandate.
Financial markets also reacted to Lula's win, with Bovespa stock index futures falling by nearly 15pc and interest rate futures rising.
Lula has been consulting economists on ways to enable lower borrowing costs, and is seeking candidates to fill four seats on Brazil's central bank's board, that he can fill by February 2027.
The central bank's decision to hold its rate unchanged came on the heels of similar hold decisions last week by the US Federal Reserve and the European central bank.
