Financial institutions consulted by the Central Bank (BC) expect an increase in the basic interest rate, the Selic, to 11.25% per year, at the Monetary Policy Committee (Copom) meeting this Tuesday (5) and Wednesday (6).
The forecast is in this Monday’s Focus Bulletin (4), a survey released weekly by the BC with expectations for the main economic indicators. Market analysts also raised their estimate for the base rate for the coming years.
At the September meeting, the Copom raised Selic for the first time in more than two years, to 10.75% per yeargiven the recent rise in the dollar and the uncertainties surrounding inflation.
The last interest rate hike occurred in August 2022, when the rate rose from 13.25% to 13.75% per year. After spending a year at this level, the rate had six cuts of 0.5 points and one cut of 0.25 points, between August last year and May this year. At meetings in June and July, the Copom decided to maintain the rate at 10.5% per year.
For the financial market, Selic should end 2024 at 11.75% per year. After this week’s meeting, the Copom will meet once again this year, on December 10th and 11th.
For the end of 2025, the estimate for the basic rate rose from 11.25% per year to 11.5% per year. For 2026 and 2027, the market expects the rate to be reduced, but raised its level by 0.25 percentage points for both years, to 9.75% per year and 9.25% per year, respectively.
Inflation
Selic is the BC’s main instrument for achieving the inflation target.
When Copom increases the basic interest rate, the purpose is to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. But, in addition to Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses. Therefore, higher rates can also make it difficult for the economy to expand.
When the Selic rate is reduced, the tendency is for credit to become cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.
For the fifth consecutive week, the financial market forecast for the Broad National Consumer Price Index (IPCA), considered the country’s official inflation, rose, going from 4.55% to 4.59% this year. If confirmed, the IPCA exceeds the inflation target ceiling defined by the National Monetary Council (CMN).
For 2025, the inflation projection also rose from 4% to 4.03%. For 2026 and 2027, forecasts are 3.61% and 3.5%, respectively.
The estimate for this year is above the ceiling of the inflation target that should be pursued by the BC. Defined by the CMN, the target is 3% for this year, with a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 1.5% and the upper limit is 4.5%.
From 2025 onwards, the continuous goal system and, thus, the CMN will no longer need to define an inflation target each year. The board set the center of the continuous target at 3%, with a tolerance margin of 1.5 percentage points up or down.
In September, driven mainly by household electricity bills, the inflation in the country was 0.44% after the IPCA registered deflation of 0.02% in August. According to IBGE, in 12 months the IPCA accumulates 4.42%.
GDP and exchange rate
Financial institutions’ projection for the growth of the Brazilian economy this year also rose from 3.08% to 3.1%. In the second quarter of the year, the Gross Domestic Product (GDP, the sum of goods and services produced in the country) surprised and rose 1.4% compared to the first quarter. According to IBGE, compared to the second quarter of 2023, the increase was 3.3%.
For 2025, GDP is expected to grow by 1.93%. For 2026 and 2027, the financial market estimates GDP expansion also at 2%, for both years.
In 2023, also exceeding projections, the Brazilian economy grew 2.9%reaching R$10.9 trillion, according to IBGE. In 2022, the growth rate had been 3%.
The dollar exchange rate forecast is R$5.50 for the end of this year. At the end of 2025, it is estimated that the North American currency will be R$5.43.
