Brazil Analysts Raise Rate Bets Amid Lula-Central Bank Feud

Maria Eloisa Capurro
·2 min read
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(Bloomberg) -- Brazil analysts raised their expectations for medium-term interest rates after President Luiz Inacio Lula da Silva renewed his criticism of the central bank’s independence and inflation targets.

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The benchmark Selic will hit 9.75% by December, 2024, up from the prior 9.5% estimate, according to a weekly central bank survey published Monday. Analysts also lifted their forecast for rates at the end of 2025 to 9% from 8.50%.

Policymakers led by Roberto Campos Neto kept borrowing costs steady at 13.75% last week and sounded the alarm on inflation expectations that are “drifting away” from their goals in a “particularly uncertain” fiscal scenario. Central bankers also signaled they could keep rates unchanged for longer. Annual inflation eased over the past few months to 5.87%, but core measures which strip out the most volatile items are accelerating.

Most analysts delayed their bets for the start of rate reductions to the meeting on Oct. 31-Nov. 1, from September before. They now see a first cut of 75 basis points, followed by a half percentage point of easing through mid-2024.

Read More: Central Bank’s Harsh Statement Upset Lula, Economic Team

Lula has reiterated criticism of current monetary policy, saying high interest rates are an impediment to growth. In a local TV interview aired last week, the president doubled down on his questioning of the central bank’s autonomy and suggested a higher, 4.5% inflation goal. The monetary authority targets consumer price increases at 3.25% in 2023 and 3% for the next two years.

Analysts see consumer-price increases reaching 5.78% in December, above the prior estimate of 5.74%. Inflation is seen above target through 2025.

(Updates with more details from survey in fourth paragraph)

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