Brazil Economists Raise Inflation Forecasts, Expect Smaller Selic Rate Cuts

Brazil's central bank survey of economists shows a rise in inflation forecasts for 2024 and 2025, leading to expectations of smaller Selic rate cuts. The median estimate for 2024 inflation rose to 4.0% from 3.9%, while 2025 inflation is seen at 3.8%. Consequently, the projected Selic rate at end-2024 is now 11.75%, up from 11.50%, implying a slower easing cycle. The survey reflects persistent services inflation and fiscal concerns. The next Copom meeting is scheduled for May 7-8, where a 25-basis-point cut is now widely expected, down from prior 50bp expectations. This shift follows hawkish comments from central bank officials and stronger-than-expected economic activity data.

Global Impact

Economically, higher Brazilian rates could slow domestic demand, weighing on GDP growth in H2 2024. Politically, the government faces pressure to deliver fiscal consolidation to support the central bank's credibility.