By Marcela Ayres
BRASILIA (Reuters) – Economists have launched a fresh wave of upward revisions to projections for Brazil’s interest rate this year, citing deteriorating inflation expectations, a weaker currency and lingering concerns over the fiscal outlook of Latin America’s largest economy.
Citi on Tuesday forecast rates to peak at 15.50% in June, following similar moves by Itau, XP (NASDAQ:XP) and Santander (BME:SAN).
“Although we believe the bulk of the currency depreciation is linked to fiscal (policy), we still expect the Brazilian central bank to react to the worsening of the inflation outlook,” Citi’s team said in a report, with easing only expected next year.
On Monday, Itau raised its Selic forecast to 15.75% by mid-year, up from 15%, projecting it to remain at that level through 2025.
“If there is another round of currency depreciation and/or further deterioration in expectations, it’s possible the tightening cycle could be extended, eventually delaying rate cuts in 2026,” the bank warned.
Earlier this month, XP revised its Selic rate projection to 15.50% this year, emphasizing growing challenges as inflation expectations drift further from the 3% target.
In December, Santander had done the same, also forecasting the Selic to end 2025 at 15.50%.
These adjustments have been gaining momentum since late last year, after leftist President Luiz Inacio Lula da Silva’s administration unveiled a fiscal control package that disappointed markets, weakening the currency and pushing interest rate futures higher.
The deterioration persisted despite the central bank’s December decision to accelerate tightening with a 100 basis-point rate hike, signaling matching increases for the next two meetings, which would push rates from the current 12.25% to 14.25%, the highest in over eight years.
Inflation closed 2024 at 4.83%, above the upper limit of its 4.5% tolerance band. Economists surveyed weekly by the central bank have been steadily raising their forecasts, now expecting consumer prices to rise by 5.08% this year and 4.10% the next.
