• Copom keeps Selic at 15% for third straight meeting, as expected
• Policymakers say prolonged pause should lower inflation
• Hawkish tone maintained amid strong labor market

BRASILIA, Nov 5 (Reuters) - Brazil's central bank kept interest rates steady for a third straight meeting on Wednesday, signaling greater confidence that holding borrowing costs at current levels for an extended period will be enough to bring inflation back to target.

The bank's monetary policy committee, known as Copom, unanimously held the benchmark Selic rate at 15%, its highest since July 2006, an outcome expected by all 40 economists polled by Reuters between October 27 and 31.

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"The committee evaluates that maintaining the interest rate at its current level for a very prolonged period will be enough to ensure the convergence of inflation to the target," the central bank said in its statement.

The slightly revised message shows policymakers are now more confident in their current strategy, after they said in the previous meeting that they would continue assessing whether the rates-on-hold approach would be sufficient.

Liam Peach, senior emerging markets economist at Capital Economics, said the statement "all but ends any hope of an interest rate cut before year-end," prompting him to shift his forecast for a first reduction to January from December, flagging risks of a longer delay.

The central bank said the current scenario remains marked by unanchored inflation expectations relative to the 3% goal, high inflation projections, resilient economic activity and labor market pressures.

It also kept unchanged a reference saying it would not hesitate to raise interest rates if needed, maintaining its hawkish stance amid assessments that Latin America's largest economy is slowing as expected, while the labor market remains strong.

Inter's chief economist Rafaela Vitoria, who still sees a 25 basis-point rate cut in January, said this sends a clear message: if fiscal policy loosens further and demand picks up, the bank may need to hike again.

Wednesday's decision came after the government became more vocal in criticizing borrowing costs, following a long period of restraint toward the central bank, which since January has been led by Gabriel Galipolo, a nominee of leftist President Luiz Inacio Lula da Silva.

Finance Minister Fernando Haddad on Tuesday urged a rate cut, saying that real rates of 10% "make no sense."

Policymakers in July halted an aggressive tightening cycle that had added 450 basis points to the benchmark rate.

The central bank only slightly adjusted its inflation projections for the relevant monetary policy horizon, now corresponding to the second quarter of 2027, to 3.3% from 3.4% in its monetary policy report in September.

For this year, the inflation forecast fell to 4.6% from 4.8%, and for 2026 it remained at 3.6%.

Although recent inflation readings have reinforced the trend of cooling prices and the Brazilian currency has appreciated more than 13% against the U.S. dollar so far this year, labor market data continue to show tightness.

Many analysts also point to a potential boost in demand from the government's plan to raise the income tax exemption for the middle class, a measure likely to spur consumption among a group more inclined to spend additional income.

The initiative, seen as one of Lula's key policies ahead of next year's presidential race, was approved by the Senate on Wednesday and now awaits presidential sanction.

https://www.reuters.com/world/americas/brazil-central-bank-holds-rates-sticks-very-prolonged-pause-message-2025-11-05/