(Bloomberg) — Brazil’s central bank governor said he’s confident the current cycle of interest rate hikes will tame above-target inflation and damp activity after policymakers cut their 2025 economic growth forecast.

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“We administered the medicine, and that will have an effect through time,” Governor Gabriel Galipolo told journalists on Thursday, referring to 3.75 percentage points in rate hikes implemented since September. “Our perception is that medicine will work, and we’ll see it in the indicators.”

Sticky inflation and consumer demand are proving to be a stern test for central bankers as they move to cool Latin America’s largest economy. Last week, they lifted the benchmark Selic by a full percentage point to 14.25% and signaled another, albeit smaller rise is on the way at their next decision in May.

Earlier on Thursday, the bank said it now expects gross domestic product to expand 1.9% this year, down from the previous of estimate of 2.1%, according to its monetary policy report. By comparison, analysts surveyed by the monetary authority see 1.98% growth in 2025.

Galipolo said central bankers are “certain” that borrowing costs are “historically elevated” regardless of estimates of the neutral interest rate, which neither restricts nor stimulates the economy.

“We want to monitor the largest amount of data to have confidence” in the disinflation process, he said.

Mid-March Inflation

A separate report on Thursday showed annual inflation speeding up further above the 3% target in early March, pressured by soaring food prices that are grinding away support for President Luiz Inacio Lula da Silva and sapping purchasing power.

Official data showed consumer prices increased 0.64% on the month, just under the 0.7% median forecast from analysts in a Bloomberg survey. From a year ago, they climbed 5.26%, reaching their highest level since March 2023.

Swap rates on the contract due in January 2026, an indicator of the market outlook toward monetary policy at the end of this year, fell 12 basis points in early afternoon trading as traders reacted to the central bank’s message and smaller-than-expected increase in consumer prices.

The inflation figures “came a bit better than expected, but still showing an acceleration,” said Marco Oviedo, a strategist at XP Investimentos. “It confirms the current monetary policy outlook of continued tightening, but at a softer pace.”