Brazil Analysts Move Toward Higher Year-End Interest Rate Forecast

(Bloomberg) -- Brazil analysts are slowly raising their 2024 year-end estimates for the benchmark interest rate again as the size of this week’s expected borrowing cost cut remains in doubt.

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The Selic will fall to 9.63% in December, up from the prior forecast of 9.5%, according to a weekly central bank economist survey published Monday. Borrowing costs will drop to 9% at end-2025 and 8.75% in 2026.

Policymakers led by Roberto Campos Neto have walked back plans for another half-point rate cut on May 8 in the face of inflation threats from higher global uncertainty. Last month during meetings in Washington DC, board members said their guidance has always been data-dependent and laid out different outlooks going forward, including one with a smaller pace of easing this week.

Read More: Brazil Inflation Slows Again, But Central Bank Still Worried

Annual inflation slowed more than expected in early April, driven by transportation. Still, closely-watched services costs are easing only gradually, fueling concerns of price pressures coming from a firm labor market.

On top of that, inflation estimates remain stuck above the bank’s 3% target. Consumer prices will rise 3.72% in December and 3.64% at the end of next year, according to Monday’s survey.

Central bankers have cut rates by 3 percentage points since August, to 10.75%. Most traders see now them slowing the pace and delivering a quarter-point cut as President Luiz Inacio Lula da Silva raises expenditures while, globally, the Federal Reserve signals it will hold borrowing costs for longer.

Investors are monitoring Lula’s spending plans after his government watered down a 2025 budget goal. Complicating matters, heavy rains that have damaged cities and crops in Brazil’s south are likely to increase outlays further.

Read More: Lula Visits Southern Brazil With Dozens Missing in Floods

In a separate central bank report on Monday, Brazil posted a primary budget surplus — which excludes interest payments — of 1.2 billion reais ($237 million) in March, compared to the median estimate of a 1.9 billion reais deficit.

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