Brazil Analysts See Higher Interest Rates in 2024 After Tightening Starts

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(Bloomberg) -- Brazil analysts raised their 2024 year-end forecasts for the benchmark interest rate after the central bank kicked off a monetary tightening cycle to cool down a hot economy.

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The benchmark Selic will hit 11.5% in December, up from the prior estimate of 11.25%, according to a weekly central bank survey published Monday. Analysts also lifted growth estimates and now see the Brazilian economy expanding 3% this year, up from 2.96% previously.

Central bankers led by Roberto Campos Neto lifted borrowing costs for the first time since 2022 last week, raising rates to 10.75% and signaling more hikes are coming. At the same time, policymakers refrained from providing guidance on the size of the future increases, saying instead they will be guided by a “firm” commitment to their 3% inflation target. Most traders bet the board will accelerate the tightening cycle at the next meeting in November.

Latin America’s largest economy has surprised both analysts and government officials with stronger-than-expected demand this year. Central bankers say activity remains resilient to high borrowing costs and inflation risks are tilted to the upside in light of a positive output gap.

Household spending is getting a boost from low unemployment and President Luiz Inacio Lula da Silva’s policies to lift living standards. Most analysts see annual inflation reaching 4.37% this year and 3.97% in 2025.

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