Brazilian economists have revised their forecasts for the country’s benchmark interest rate, anticipating a series of rate hikes beginning this week. According to a recent central bank survey, the Selic rate is expected to reach 10.5% by December 2025, an increase from the earlier projection of 10.25%. Analysts, however, have maintained their end-of-year forecast for 2024 at 11.25%.
The anticipated shift in monetary policy, led by Central Bank President Roberto Campos Neto, comes as Brazil grapples with persistent inflation exceeding the central bank’s target of 3%. Inflationary pressures have been driven by rising service costs and core inflation measures, excluding energy and food items.
In a related economic update, the Brazilian government has revised its growth forecast for 2024 upward to 3.2%, up from the previous estimate of 2.5%. This adjustment follows stronger-than-expected GDP performance in the second quarter, driven by increased family consumption and industrial activity. Despite this, the central bank’s GDP proxy indicated a decline in economic activity in July.
Inflation forecasts have been adjusted accordingly, with analysts predicting a year-end rate of 4.35% for 2024 and 3.95% for December 2025. The twelve-month inflation forecast is estimated at 4.05%, reflecting ongoing economic challenges.
Several factors contribute to the inflationary environment, including a depreciating real, a tight labor market, and heightened public expenditure. In response to these challenges, the Finance Ministry has indicated potential measures to address fiscal deficits and consider emergency credit to manage the impact of severe wildfires. Additionally, the government is exploring new emergency aid initiatives for fishermen affected by severe drought conditions, as stated by Social Development Minister Wellington Dias.
