Economists in Brazil have revised upward their outlook for the benchmark Selic rate at the close of 2027, reflecting growing inflationary pressure tied to strong domestic demand and an energy shock associated with the Iran war.
A weekly central bank survey of economists, published on Monday, now places the expected Selic rate at 11.25% by the end of 2027, up from the earlier projection of 11%. The same set of respondents signalled that they anticipate inflation will remain above the central bank's 3% target through 2029.
These forecasts arrive against a backdrop in which Brazil's central bank has begun to ease a restrictive monetary stance, even as inflation is on the rise. Current borrowing costs are reported at 14.5%, but analysts warn that elevated oil prices and fresh fiscal stimulus introduced by President Luiz Inacio Lula da Silva are undermining the potency of those high rates.
The combination of persistent demand-side pressure and the energy shock has altered the monetary outlook for the medium term, prompting forecasters to push their 2027 rate expectation higher. The upward revision highlights how external energy developments and domestic policy moves can affect the trajectory of inflation and interest rates.
Policymakers face a trade-off: continue the gradual loosening of policy or pause in the face of inflationary signals that may persist beyond the short term. The survey results underline uncertainty about how far the central bank can proceed with easing, particularly as political developments loom - presidential elections are scheduled for October.
Analysts point to the interaction between elevated oil prices and recent stimulus measures as a factor that weakens the transmission of high policy rates to the broader economy. That dynamic raises questions about the effectiveness of current borrowing costs in cooling inflationary pressures.
Overall, the revised forecast and the expectation that inflation will stay above target through 2029 suggest a more protracted adjustment period for monetary policy than previously envisioned, with implications for financial markets, consumers, and businesses sensitive to interest rates and energy costs.