Trends of Brazil’s Central Bank (BCB) and Mexico’s Central Bank (BOM)
2025-01-03
■ BCB continues the interest rate hike cycle, while BOM continues the interest rate cut cycle, suggesting an enhanced stance for the first half of next year.
■ Concerns over the depreciation of the real continue, but the peso depreciation has eased, and both central banks face different environments as they enter 2025.
Brazil's Central Bank (BCB) announced its monetary policy meeting results on December 11 (local time), and Mexico's Central Bank (BOM) announced its results on December 19 (local time). As the volatility of the Brazilian real (real) and Mexican peso (peso) was a hot topic among emerging market currencies this year, this article aims to summarize the movements of both central banks, including the results of the final monetary policy meetings of the year. Since the summer of this year, the policy stances of both central banks have been contrasting. BCB shifted to an interest rate hike cycle starting from the September meeting and decided to raise rates by a substantial 1.00% in December, bringing the policy interest rate to 12.25%, exceeding market expectations. In contrast, BOM has continued its interest rate cut cycle since the March meeting, and in December, it unanimously decided to reduce the rate by 0.25% for the fourth consecutive meeting, bringing the policy rate down to 10.00%.
As confirmed in the December 12 issue of PRESTIA Insight*1, BCB indicated in its statement that it would implement similar-sized interest rate hikes (1.00%) at the next two meetings if the scenario developed as expected. However, in the minutes released on December 17, BCB emphasized the heightened inflation risks and the need for caution regarding the depreciation of the real. Specifically, the deterioration of short- and medium-term inflation scenarios and discussions about the exchange rate were added, and the real neutral interest rate was raised to 5.00%. These actions seem to signal to the market that BCB's policy stance will remain consistent as the new president, Galípolo, takes office in January 2025. The new president, seen as close to President Lula, will face challenges regarding his approach to handling disputes with the government and addressing the revival of the real, which is at its lowest value against the dollar in history, making 2025 a key point of focus.
BOM’s statement suggested that, in addition to continuing its rate-cutting policy, it may consider further significant rate cuts depending on future price trends. At the same time, BOM revised its price outlook for the second half of 2025 upward and noted that the real GDP for the July-September quarter grew by 1.6% year-on-year, signaling that the economy is stabilizing, but there remains a risk of further downward pressure. BOM is not overly optimistic about future developments. Additionally, there is a need to prepare for potential tariffs imposed by incoming U.S. President Trump. However, since the end of November, the peso has risen against the dollar, and at least for now, the market seems to favor the joint efforts of the Sheinbaum administration and BOM in supporting Mexico's economy. The president has already started negotiations with Trump via a phone call on November 28, and other senior officials have hinted at maintaining the USMCA (United States-Mexico-Canada Agreement
■ Concerns over the depreciation of the real continue, but the peso depreciation has eased, and both central banks face different environments as they enter 2025.
Brazil's Central Bank (BCB) announced its monetary policy meeting results on December 11 (local time), and Mexico's Central Bank (BOM) announced its results on December 19 (local time). As the volatility of the Brazilian real (real) and Mexican peso (peso) was a hot topic among emerging market currencies this year, this article aims to summarize the movements of both central banks, including the results of the final monetary policy meetings of the year. Since the summer of this year, the policy stances of both central banks have been contrasting. BCB shifted to an interest rate hike cycle starting from the September meeting and decided to raise rates by a substantial 1.00% in December, bringing the policy interest rate to 12.25%, exceeding market expectations. In contrast, BOM has continued its interest rate cut cycle since the March meeting, and in December, it unanimously decided to reduce the rate by 0.25% for the fourth consecutive meeting, bringing the policy rate down to 10.00%.
As confirmed in the December 12 issue of PRESTIA Insight*1, BCB indicated in its statement that it would implement similar-sized interest rate hikes (1.00%) at the next two meetings if the scenario developed as expected. However, in the minutes released on December 17, BCB emphasized the heightened inflation risks and the need for caution regarding the depreciation of the real. Specifically, the deterioration of short- and medium-term inflation scenarios and discussions about the exchange rate were added, and the real neutral interest rate was raised to 5.00%. These actions seem to signal to the market that BCB's policy stance will remain consistent as the new president, Galípolo, takes office in January 2025. The new president, seen as close to President Lula, will face challenges regarding his approach to handling disputes with the government and addressing the revival of the real, which is at its lowest value against the dollar in history, making 2025 a key point of focus.
BOM’s statement suggested that, in addition to continuing its rate-cutting policy, it may consider further significant rate cuts depending on future price trends. At the same time, BOM revised its price outlook for the second half of 2025 upward and noted that the real GDP for the July-September quarter grew by 1.6% year-on-year, signaling that the economy is stabilizing, but there remains a risk of further downward pressure. BOM is not overly optimistic about future developments. Additionally, there is a need to prepare for potential tariffs imposed by incoming U.S. President Trump. However, since the end of November, the peso has risen against the dollar, and at least for now, the market seems to favor the joint efforts of the Sheinbaum administration and BOM in supporting Mexico's economy. The president has already started negotiations with Trump via a phone call on November 28, and other senior officials have hinted at maintaining the USMCA (United States-Mexico-Canada Agreement