Brazil Interest Rate Hikes Rampant amid Economic Concerns
Financial analysts are revising upwards their projections for Brazil's interest rates, citing worsening inflation expectations, currency weakness, and fiscal outlook uncertainties.
Citi projects rates to reach 15.50% by June, mirroring similar forecasts from Itau, XP, and Santander. Despite attributing currency depreciation to fiscal policy, Citi expects the central bank to address the deteriorating inflation outlook, with easing unlikely until next year.
Itau raised its Selic forecast to 15.75% mid-year, predicting it to remain at that level through 2025. The bank warns of a potential extended tightening cycle and delayed rate cuts in 2026 if currency depreciation or inflation expectations worsen.
XP also revised its Selic projection to 15.50% this year, citing increasing challenges as inflation expectations diverge from the 3% target. Santander had previously forecast the Selic to reach 15.50% by 2025.
These revisions have intensified since late last year following President Lula's underwhelming fiscal control package. The resulting currency weakness and higher interest rate futures have persisted despite the central bank's rapid tightening actions.
Inflation closed 2024 at 4.83%, exceeding the tolerance band's upper limit. Central bank surveys indicate economists now expect inflation to rise by 5.08% this year and 4.10% next year.