The Central Bank of Brazil decided to keep the interest rate on hold. It reiterated the rational of its previous communiqué, which is that the Copom took the decision after assessing the macroeconomic situation, inflation outlook, and present balance of risks. It also considered the increased uncertainties on the external side and less importantly, on the domestic side.

As anticipated, two Copom board members continued to vote for a rise in interest rate by 50bp. Increased inflation expectations and stronger-than-projected underlying inflation in February are expected to be the main reasons for the board members to be concerned.

The spilt decision is not expected to lead markets to anticipate an imminent rise but prevent them from projecting an early monetary policy easing. The BCB is likely to begin easing by August 2016, by when the inflation should have decelerated in year-on-year terms, and incoming information will likely strengthen the market decline of the labor market. In 2016, the Copom is likely to lower the Selic rate by 125bp.