Analysts raised their interest rate forecasts again amid a conflict between Brazil’s president and the central bank
(Bloomberg) — Brazil analysts raised their interest rate estimates for this year and next as the government mulls an early review of inflation targets to defuse tensions between President Luiz Inacio Lula da Silva and the central bank.
The benchmark Selic will be reduced to 12.75% by December, instead of the prior estimate of 12.5%, according to a weekly central bank survey published Monday. Analysts also lifted their forecast for rates at the end of 2024 to 10% from 9.75% before as they see a slower pace of rate cuts ahead.
Policymakers led by Roberto Campos Neto signaled they will forge on with interest rates at 13.75% for longer as cost-of-living increases gradually ease. Central bank board member Bruno Serra said a recent rise in consumer-price expectations is the main challenge ahead and reaffirmed the monetary authority won’t have “leniency” in its battle against inflation.
Read More: Brazil Weighs Early Policy Review to Tolerate More Inflation
Most analysts in the survey believe the rate-cut cycle will begin in November, though they now bet on a slower easing pace of 50 basis points. The cycle should continue through 2024, according to their estimates.
Escalating Attacks
Members of the economic team are mulling an early review of current inflation targets of 3.25% for this year and 3% for 2024 and 2025, according to two government officials with knowledge of the matter.
The national monetary council, the government body responsible for setting those goals, will meet on Thursday. Inflation targets are traditionally discussed in June, and the group needs to define a goal for 2026. The central bank has a minority vote on the council.
Read More: Battle Over Inflation Target Is Taking a Toll on Markets
Lula has been escalating his attacks against monetary policy, which he described as an “embarrassment.” He has criticized the central bank’s 13.75% interest rate and suggested a 4.5% inflation goal to jump-start the economy.
Annual inflation eased to 5.77% in January, though transportation costs and food prices are picking up again. Core measures that strip out the most volatile items slowed down, but central bankers say they remain above their goals.
Analysts in the survey also lifted their consumer-price forecasts further above targets, as they see annual inflation hitting 5.79% this year, 4% next and 3.6% in 2025.
(Updates with more details in fourth paragraph)
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