Brazil Analysts Hike Forecasts for Interest Rate and Inflation

(Bloomberg) -- Brazil analysts raised their interest rate forecasts for this year and next as they also see faster inflation through 2026, indicating the outlook for Latin America’s largest economy continues to worsen.

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The benchmark Selic will hit 10.25% this December, up from the prior estimate of 10%, according to a weekly central bank survey published on Monday. Analysts raised their median forecast for rates at end-2025 to 9.18% from 9%.

Brazil economists also see inflation further above the 3% target through 2026—at 3.88% this year, 3.77% at the end of 2025 and 3.6% at the end of 2026.

The forecasts are bad news for central bankers who have reinforced pledges to hit their price target since a split decision on rates last month. Governor Roberto Campos Neto has said he remains “optimistic” about the prospects for monetary policy while Director Gabriel Galipolo has said concerns about the institution’s tolerance for inflation will dissipate “with time.” Meanwhile, the government is pressuring for lower borrowing costs to help the economy.

Read More: Brazil Central Bank Chief Says Inflation Forecasts Will Improve

Analysts remain skeptical of the bank’s commitment to its target after the split vote exposed rifts among the board. All four directors nominated by President Luiz Inacio Lula da Silva favored a half-point rate cut in May, while the majority led by Campos Neto backed a quarter-point cut to 10.5%.

Investors are concerned as terms for Campos Neto and also two directors will end this year, thus allowing Lula to consolidate his influence over the board. Finance Minister Fernando Haddad said the inflation target is “demanding,” though he noted the government remains committed to reaching it.

Read more: Under Lula, Doves Are Rapidly Gaining Power in the Central Bank

Annual inflation eased to 3.7% in early May, with improvements in food prices and core measures that exclude volatile items, according to official data published Tuesday. Closely watched underlying services costs also edged lower.

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