March Central Bank Reviews: Brazil, South Africa, Mexico
2025-03-31
■ All three central banks delivered results in line with market expectations. Brazil continues to raise interest rates, while Mexico signals further rate cuts.
■ While the intensity varies, all three central banks share a cautious stance regarding U.S.-originated trade tensions. Relatively speaking, Brazil is likely to be favored.
The Central Bank of Brazil (BCB) announced its monetary policy decision on the 19th (local time), the South African Reserve Bank (SARB) on the 20th (local time), and the Bank of Mexico (BOM) on the 27th (local time). All of these decisions were in line with market expectations. BCB decided to raise the interest rate by 1.0% for the second consecutive meeting, bringing the policy rate to 14.25%. SARB kept the policy rate unchanged at 7.50%, marking the first time in four meetings that they held steady. BOM decided to reduce the interest rate for the sixth consecutive meeting, lowering it to 9.00%.
When BCB transitioned to the Galipolo regime in January of this year, it had indicated in the December meeting last year that it would continue raising interest rates until March. Additionally, the February Consumer Price Index (IPCA) increased by 5.06% year-on-year, exceeding BCB's target range (1.5-4.5%) since October of the previous year. The policy rate has surpassed the peak level (13.75%) set during the COVID-19 pandemic, but BCB pointed to the strength of the domestic economy and labor market, suggesting that the direction of interest rate hikes will continue in future meetings. Considering the high real interest rates, it is expected that the Brazilian real will remain relatively stable compared to other emerging market currencies.
SARB's decision to maintain the policy rate is based on the moderation of price growth and the deterioration of relations with the U.S. The February Consumer Price Index (CPI) rose by 3.2% year-on-year, accelerating from 2.8% in October of the previous year. SARB believes that the CPI's return to the target range (3-6%) was a key factor in halting the rate cuts. Additionally, the suspension of financial aid and the forced expulsion of the South African ambassador to the U.S. are signs of deteriorating relations between the two countries. The U.S. government's "reciprocal tariffs" set to be enacted on April 2 may affect the South African economy. In the January meeting, SARB had expressed concerns over the economic impact of the U.S. tariff policy. Furthermore, the budget proposal for the 2025/26 fiscal year (April 2025-March 2026), particularly regarding a potential increase in VAT, has led to tensions between the African National Congress (ANC) and the Democratic Alliance (DA), adding political uncertainties. If relations with the U.S. worsen further, it could create headwinds for the South African rand.
BOM's statement did not change significantly from the February meeting. The assessments of the economy and inflation were largely unchanged, and the BOM hinted that a 50bps rate cut would be considered at the next policy meeting in May. Although the statement did not address the impact of U.S. tariffs in detail, it can be interpreted that BOM remains committed to supporting economic activity with monetary policy, provided that the trend of moderated inflation persists and future economic risks are managed.
■ While the intensity varies, all three central banks share a cautious stance regarding U.S.-originated trade tensions. Relatively speaking, Brazil is likely to be favored.
The Central Bank of Brazil (BCB) announced its monetary policy decision on the 19th (local time), the South African Reserve Bank (SARB) on the 20th (local time), and the Bank of Mexico (BOM) on the 27th (local time). All of these decisions were in line with market expectations. BCB decided to raise the interest rate by 1.0% for the second consecutive meeting, bringing the policy rate to 14.25%. SARB kept the policy rate unchanged at 7.50%, marking the first time in four meetings that they held steady. BOM decided to reduce the interest rate for the sixth consecutive meeting, lowering it to 9.00%.
When BCB transitioned to the Galipolo regime in January of this year, it had indicated in the December meeting last year that it would continue raising interest rates until March. Additionally, the February Consumer Price Index (IPCA) increased by 5.06% year-on-year, exceeding BCB's target range (1.5-4.5%) since October of the previous year. The policy rate has surpassed the peak level (13.75%) set during the COVID-19 pandemic, but BCB pointed to the strength of the domestic economy and labor market, suggesting that the direction of interest rate hikes will continue in future meetings. Considering the high real interest rates, it is expected that the Brazilian real will remain relatively stable compared to other emerging market currencies.
SARB's decision to maintain the policy rate is based on the moderation of price growth and the deterioration of relations with the U.S. The February Consumer Price Index (CPI) rose by 3.2% year-on-year, accelerating from 2.8% in October of the previous year. SARB believes that the CPI's return to the target range (3-6%) was a key factor in halting the rate cuts. Additionally, the suspension of financial aid and the forced expulsion of the South African ambassador to the U.S. are signs of deteriorating relations between the two countries. The U.S. government's "reciprocal tariffs" set to be enacted on April 2 may affect the South African economy. In the January meeting, SARB had expressed concerns over the economic impact of the U.S. tariff policy. Furthermore, the budget proposal for the 2025/26 fiscal year (April 2025-March 2026), particularly regarding a potential increase in VAT, has led to tensions between the African National Congress (ANC) and the Democratic Alliance (DA), adding political uncertainties. If relations with the U.S. worsen further, it could create headwinds for the South African rand.
BOM's statement did not change significantly from the February meeting. The assessments of the economy and inflation were largely unchanged, and the BOM hinted that a 50bps rate cut would be considered at the next policy meeting in May. Although the statement did not address the impact of U.S. tariffs in detail, it can be interpreted that BOM remains committed to supporting economic activity with monetary policy, provided that the trend of moderated inflation persists and future economic risks are managed.