The Brazilian central bank published its medium-term forecasts for the growth of prices on Thursday, indicating that the rate will continue to be slow.
The bank’s quarterly report on monetary policy lowered its inflation forecasts for 2025, 2026, and projected 3.2% for the last quarter of 2027. This brings the number closer to policymakers’ 3% goal.
The country’s Selic key interest rate has reached a near 20-year high of 15% after a prolonged and intense monetary tightening.
In September, the central bank began the current rate hike cycle. Rates have increased by 450 basis points in total to achieve a balance between controlling inflation and growing the economy.
The trend is downwards. Although the inflation rate was forecast to be 3.6% for 2026, earlier in the month the projection for 2027 of 3.2% indicates that it will continue.
Bank of Canada’s inflation target is between 1.5% and 4.5%. This gives policymakers a little breathing space in light of the global uncertainties as well as local structural problems.
Tighter policy, stronger growth
Brazil’s economic resilience has been demonstrated despite the current high rate of interest. In March, the central bank increased its forecast for 2025 growth to 2,1% from 1,9%.
The improvement reflects stronger-than-expected labor market performance in the first half of the second quarter, as well as a slight boost in consumer activity due to regulatory changes affecting payroll-deductible loans in the private sector.
Despite high borrowing costs, these policy changes have increased household liquidity.
Officials remain cautious and predict a slowdown in growth for the second quarter of this year.
Analysis identifies a number of factors which could slow down momentum. These include tighter monetary policies, a limited capacity for spare production, dwindling global demand and the waning impact from agriculture, which was largely responsible for first quarter growth.
Forecasts for inflation revised down
The central bank has cut the inflation projections for previous years. This cut the forecast for 2025 by 0.2 points to 4.9%, and the outlook for 2026 was slightly reduced to 3.5%. Inflationary pressures may be gradually easing, but the picture is ambiguous.
This report shows that there are a variety of factors affecting prices. On the plus side, better than expected economic activity is continuing to push pressure on services.
On the flip side, the recent fall in oil prices and brl value has also contributed to easing some of these cost pressures. This gives the central bank more breathing room without needing to tighten the margin immediately.
Bank of America also showed its continued hawkishness by describing the current interest rate level as “consistent” with a long period. This reflects the prudent approach to re-anchor inflation expectations at the target 3% before any policymakers ease off.
The path ahead is gradual deflation in the face of global uncertainty
Recent central bank reports paint a cautiously optimistic picture. Although inflation is still above target in the near term, the predictions show a gradual convergence within the next two-year period, even though the global GDP will likely decrease.
The disinflationary route is influenced by a number of factors, including increased policy transmittance, domestic resilience and external variables such as lowered commodity prices.
The road ahead will not be without risk. The uncertainty over interest rates in developed countries could be spread to developing nations, causing Brazil’s monetary policies to become more complicated. Medium-term predictions may be affected by domestic economic and political pressures.
The central bank is still holding steady, betting that persistence and patience will bring inflation back to its desired range.
Latin America’s biggest economy will be tested in the next few quarters as it struggles to find a balance between price stability and growth.
The post Brazil Central Bank trims forecasts for 2025 and 2026 as they unfold may be updated.
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