Financial institutions see higher interest rates continuing into 2022

Markets expect that Brazil’s ongoing monetary tightening process will extend into 2022, raising forecasts for benchmark interest rate Selic to 6.5 percent by the end of 2022 — up from 6.25 percent a week ago. The data comes from the Central Bank’s Focus Report, a weekly survey of top-rated investment firms. Projections for the end of this year remained unchanged at 5.5 percent.

The report comes a week after the Central Bank published the minutes of the latest Monetary Policy Committee meeting, which sustained the view that the inflation spike is merely temporary — despite the fact it has been going on for almost a year now. As reported by this live blog on May 11, analysts were already convinced benchmark interest rates would reach 6.25 percent by the end of 2021.

Hawkish estimates for interest rates are in contrast with a more optimistic view for the foreign exchange rate. Market agents now see the local currency trading at BRL 5.30 to the dollar by the end of the year, five cents lower than last week. A devalued USD would help keep inflation in check, and, therefore, avoid interest rate spikes.

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