(Bloomberg) — Brazil economists raised their forecasts for inflation and borrowing costs in 2025 after central bankers reinforced their commitment to extend large interest rate hikes into early next year.
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The benchmark Selic will rise to 15% by June of 2025, according to a weekly central bank survey of economists published Monday. Monetary easing is expected to start later that year, with the key rate falling to 14.75% by December, and extend into 2026 to take it to 11.75% by year-end.
Outgoing central bank Governor Roberto Campos Neto led board members in the decision to hike rates by a full percentage point to 12.25% this month, in his final policy meeting. His successor, Gabriel Galipolo, reinforced the commitment to lift the Selic by two additional percentage points by March, saying last week that there’s a high bar for any change to their guidance.
Policymakers are then expected to deliver two additional rate hikes: first of a half point and then a quarter point, according to the survey.
The central bank is battling above-target inflation, and estimates for future consumer price increases are also on the rise. Food has become costlier while service costs also prove resilient as the economy remains overheated.
Analysts see consumer price increases at 4.84% next year, above the central bank’s 4.5% tolerance range ceiling. Annual inflation is seen at 4% in 2026 and 3.8% in 2027, both above the 3% target.
Family consumption is on the rise, supported by record low unemployment and a jump in government spending. Central bankers say inflationary pressures are picking up, underscoring the case for even more restrictive rates.
A weaker real is only adding to the bank’s inflation challenges. Investors are dumping the currency, as skepticism grows over President Luiz Inacio Lula da Silva’s commitment to shore up public accounts.
The central bank reported currency outflows of roughly $14.7 billion between Dec. 1-19, according to a separate report on Monday.
Lula’s austerity plan was approved by Brazil’s congress last week with changes that will reduce its potential savings by just 1 billion reais ($164 million), far less than feared, according to Finance Minister Fernando Haddad. The original plan called for 70 billion reais in spending cuts over the next two years.
