Brazilian economists surveyed weekly by the central bank have aligned their expectations with future interest rate pricing, now anticipating a rate hike at this month's monetary policy meeting following stronger-than-expected economic data.
The shift ended an 11-week streak in which more than 100 professionals surveyed had maintained their median forecast for the benchmark interest rate, the Selic, to remain at the current 10.50% level through year-end.
The change came after Latin America's largest economy posted surprising growth in the second quarter, prompting a wave of upward revisions for this year's expansion.
According to the central bank's survey, expectations now see a 25-basis-point hike in each of the three remaining rate-setting meetings this year, with borrowing costs closing 2024 at 11.25%.
"This scenario underscores the market’s concern about balancing economic growth with inflation control, and points to a higher interest rate environment to contain inflationary pressures," said Arnaldo Lima, economist and institutional relations chief at Polo Capital Management.
Bank of America in a Monday report revised its interest rate outlook, now expecting a 25-basis-point increase next week followed by two hikes of 50 basis points each by December. Its previous call was for steady rates this year.
"Four key factors support the change in our view: inflation expectations failed to decline in recent weeks, the Brazilian real remained above 5.50 per dollar, growth surprised to the upside and the local yield curve is fully pricing a hike in for the next Copom meeting," the BofA team led by David Beker wrote.
The central bank survey also shows the tightening cycle extending into January, with an additional 25-basis-point increase pushing the Selic rate to 11.50% at the beginning of next year.
Some institutions had predicted since August that policymakers would begin a tightening cycle at the Sept. 17-18 meeting, a scenario previously reflected in yield curve pricing, which currently shows a 90% probability of a 25-basis-point hike in the upcoming decision.
Last week, the bank's economic policy director, Diogo Guillen, highlighted that policymakers had noted stronger economic growth since their latest meeting, with the exchange rate "a bit higher" and inflation expectations remaining broadly unchanged but de-anchored, a cause for concern.
The weekly survey also showed respondents raising their gross domestic product forecasts for this year to 2.68%, up from 2.46% the previous week.
The following are projections from the survey:
