Brazil’s economists trimmed their forecast for benchmark interest rates at the end of 2026 after more than seven months unchanged in a weekly central bank survey published Monday.
The revision legitimises shifts in expectation around the path for monetary policy in Latin America’s largest economy, coming just days ahead of a meeting of policymakers to set their next rate decision.
The survey, which compiles forecasts from over 100 economists, found the median prediction for the Selic at 12.38% at the close of next year.
This compares to a prior estimate for 12.50%, which had remained unchanged for 32 weeks.
The tweak, though small, reflects a rising expectation that interest rates may not stay as high as once feared.
Breaking the streak of stability
The Selic rate has been the subject of intense scrutiny since Brazil’s central bank began an aggressive tightening cycle to combat inflation.
Forecasts for the rate’s course have remained constant since early this year, indicating widespread consensus among analysts that policymakers would maintain monetary conditions tight for a lengthy period.
Monday’s correction, however, indicates a minor movement in opinion. The 0.12 percentage point drop may appear modest, but it ends a 32-week streak in which economists maintained a consistent forecast.
The revision indicates a changing expectation for inflation and growth, as well as the central bank’s readiness to maintain stringent policy settings.
Inflation expectations continue to diverge
In July, at the most recent meeting of the central bank, officials placed inflation based on their estimates at 4.9% for 2024 and 3.6% for 2026.
Seen in that light, these forecasts underscored policymakers’ belief inflation would continue to drift over time back closer to the target, even if running above the official midpoint for a long time.
Meanwhile, private economists have remained more circumspect.
Still, the response to Monday’s survey, which has a sample of around 1,000 people, saw market players expecting inflation of 4.83% for this year, a touch below the central bank’s July prediction.
Economists expect consumer price growth of 4.30% in 2026, well above policymakers’ 3.6% projection.
This disparity highlights the persistent uncertainty about the rate of disinflation.
Price pressures may have subsided from their peak, but expectations tend to set a mean, and MI implies that, in the medium run, the central bank’s confidence in meeting its (2.5%) target remains short of the goal-post.
Policy outlook under the microscope
Policymakers are taking careful note of the importance of how high borrowing prices will affect growth relative to the threats of inflation as they prepare for the central bank’s next policy decision.
Brazil’s performance has proved somewhat palliative in the last few quarters; however, high interest rates are still limiting credit and investment.
The latest change by economists to the outlook for Selic may be rooted in the perception that decision-makers will eventually try to loosen, albeit with restraint.
If the small downward revision in forecasts was actually a sign that disinflationary forces coupled with softer growth dynamics may allow for a more gradual policy stance than previously thought, maybe we will see a change in the tone of the meeting?
The survey results also imply that confidence in radical rate relief is scant, however.
As inflation predictions move further and further into the future, likely above the central bank’s target again for 2026, it seems analysts would see monetary authorities adopting a broadly cautious approach to retaining higher relative interest rates over history.
Cautionary shifts ahead of key decision
The timing of the survey’s shift lends credibility to its interpretation.
With the central bank ready to publish its next decision in the coming days, the revised predictions serve as a barometer of market expectations for the meeting.
While the reduction in the 2026 Selic estimate is minor, it is a significant shift from months of stability.
The discrepancy between policymakers’ inflation forecasts and those of private economists poses a challenge.
Closing this gap may necessitate more transparent communication about the bank’s inflation-fighting approach and willingness to adjust rates if inflation expectations stay stubbornly high.
As Brazil’s central bank prepares to make its next move, the survey results highlight the delicate mix of credibility and flexibility.
Economists’ small drop in the Selic outlook suggests cautious optimism that inflation pressures will ease, but long-term uncertainties remain.
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