(Bloomberg) -- Brazil analysts lifted their estimates for the benchmark interest rate between 2025 and 2027 as investors worry about President Luiz Inacio Lula da Silva’s commitment to fiscal discipline.
The benchmark Selic will hit 11.5% in December of 2025, up from a prior estimate of 11.25%, according to a weekly central bank survey of economists published by the central bank on Monday. They also lifted their key rate forecasts to 9.75% by year-end 2026 and 9.25% for 2027. Estimates for next month stayed unchanged at 11.75%.
The central bank led by Roberto Campos Neto is expected to extend its monetary tightening cycle this week, delivering a half-point hike that would take the Selic to 11.25%. Annual inflation is running near the top of the bank’s tolerance range and is forecast to remain above the 3% target through at least 2027.
The same fiscal concerns fueling expectations of fast-rising consumer prices are weighing on the local foreign exchange market. The Brazilian real has tumbled more than 17% so far this year, becoming the worst-performing major currency after the Mexican peso.
Brazil’s annual inflation will accelerate to 4.59% in December, above last week’s estimate of 4.55%, according to the survey. Consumer prices will rise 4.03% next year and 4.08% in a 12-month horizon.
Lula’s top ministers are working on spending cut measures designed to regain investors’ trust in the sustainability of public accounts, after Finance Minister Fernando Haddad was able to win over a key cabinet member who opposed them. Discussions are centered on mandatory expenditures that are rising above the limit of Brazil’s fiscal rules, which allows for increases of 2.5% over inflation.
Campos Neto has said the government needs a “positive fiscal shock” to rein in inflation and rate expectations, which would then allow the central bank to ease monetary policy.
©2024 Bloomberg L.P.