Following President Luiz Inácio Lula da Silva’s remarks criticizing the independence of the Central Bank, market agents once again raised their year-end inflation forecasts for both this year and the next.
Estimates for the IPCA annual consumer price index for 2023 rose from 5.23% to 5.48% in four weeks. For 2024, it stood at 3.84%, up from 3.6% a month ago.
Lula last week described as “nonsense” the belief that an independent Central Bank — as has been the case since 2021 — is necessarily better than the previous arrangement, when the bank wasn’t formally shielded from political interference.
The president also advocated a higher inflation target, which would be easier to meet and allow for lower benchmark interest rates, currently at 13.75 percent.
But with inflation expectations deteriorating, analysts surveyed by the monetary authority believe there is little room for major rate cuts.
Markets expect the Selic benchmark rate to end the year at 12.5 percent — the same as expectations from one month ago. But they raised their forecasts for the next three years by a quarter of a percentage point. Analysts see Brazilian interest rates at 8.25 percent by the end of 2026.
The Central Bank has warned several times that fiscal risks could lead to new rate hikes. Lula said last week that the market does not care about the country’s “social debt” to the poor.
Markets will closely follow the nomination of two Central Bank officers scheduled for February. They will serve four-year terms. The names chosen will indicate the government’s hopes for monetary policy.
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