(Bloomberg) -- Brazil analysts raised their 2025 year-end interest rate forecasts for the second straight week as the inflation outlook worsens and investors question the government’s pledges for fiscal balance.
The benchmark Selic will hit 11.25% at the end of next year, up from the prior estimate of 11%, according to a weekly central bank survey published Monday. Estimates for borrowing costs this December were unchanged at 11.75%.
Economists increased their annual inflation forecast for this December to 4.5% — the top of the central bank’s tolerance range — from 4.39% last week. In a twelve-month horizon, cost-of-living rises are seen at 4.01%.
Central bankers led by Roberto Campos Neto are lifting the Selic as inflation forecasts show no sign of easing back toward the 3% target. A heated economy — made possible by a tight labor market and an increase in government spending — is boosting households’ disposable income. Policymakers said they remain data-dependent going into next month’s rate decision in light of volatility.
Inflation estimates are “very clearly” above target, Campos Neto said at an event later on Monday, adding that he is paying “close attention” to services costs.
Most recently, annual inflation sped up to 4.42% in September as a historic drought compounded pressure on electricity and food costs. The central bank raised borrowing costs by a quarter-point to 10.75% in the same month.
Planning Minister Simone Tebet said last week the government will unveil “as many measures as possible” to cut spending. Investor concerns about the country’s debt path are weighing on the Brazilian real, which remains among the worst performers in emerging markets so far this year.
A weaker currency, in turn, fans inflation by making imports more expensive.
Tebet’s remarks came after President Luiz Inacio Lula da Silva called for an expansion in income tax exemptions without clarifying how he would make up for any loss of revenue.
“There’s a lack of trust on part of the market on the ability of fiscal framework to deliver on its promises,” Campos Neto said on Monday. “It’s very difficult to lower rates when there’s a perception that fiscal policies are not anchored.”
--With assistance from Franco Dantas.
(Updates with new comments from bank governor starting in fifth paragraph)
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