Brazil Analysts Lift 2025 Interest Rate and Inflation Forecasts

(Bloomberg) -- Brazil analysts raised their estimates for the benchmark interest rate and inflation at the end of next year after central bankers warned of a prolonged monetary tightening cycle.

The benchmark Selic will hit 12% in December, 2025, up from prior estimate of 11.5%, according to a weekly central bank survey of economists published on Monday. Analysts also lifted their forecasts for consumer price increases at the end of 2025 to 4.12%, marking the fifth straight increase.

Policymakers led by Roberto Campos Neto kicked off a tightening cycle in September that has lifted interest rates by 75 basis points so far, to 11.25%. Annual inflation is running above the tolerance range, at 4.76%, boosted by resilient economic activity, a tight labor market and higher government spending. Last week, central bankers warned of more prolonged campaign of rate hikes if consumer price expectations worsen further.

Estimates for annual inflation this December rose for the seventh straight week, to 4.64%. In a twelve-month horizon similar to the bank’s inflation regime, cost-of-living increases are seen at 4.14%.

Policymakers target annual inflation at 3%, with a tolerance range of plus or minus 1.5 percentage points.

Finance Minister Fernando Haddad is working on a proposal to cut spending as investors question President Luiz Inacio Lula da Silva’s commitment to shoring up public accounts. The package should reduce uncertainty and eventually help lower interest rates, Haddad said in an interview on Sunday night.

Policymakers have advocated for “structural changes” in fiscal policy to lower inflation forecasts, eventually opening the door for rate cuts. In-coming central bank Governor Gabriel Galipolo has said investors have been surprised by the impact of public spending on the overall economy.

Major banks have been revising their estimates for the end-of-cycle Selic rate. Itau lifted its forecast to 13.5% from 12% previously, citing a weaker currency and increased inflationary risks, according to a note published on Monday.