According to a Reuters poll, Brazil's central bank is set to raise its benchmark interest rate by 100 basis points on January 29, with further increases expected thereafter, aiming to reach the highest level in nearly two decades by mid-year.
This anticipated hike, in line with recent signals from policymakers, would mark Banco Central do Brasil's (BCB) second consecutive full percentage point increase following a similar move in December that caught the markets off guard.
With growing concerns about inflation worldwide, Brazil's interest rates are now projected to end up significantly higher than just a month ago.
This month's decision will be the first under the newly-appointed bank governor, who is confronted with escalating challenges.
Brazilian policymakers, known as Copom, are likely to raise the benchmark Selic from 12.25% to 13.25% on January 29 based on inflation expectations, as indicated by a poll of 38 economists conducted from January 21 to 24.
Beyond its impact on Latin America's largest economy, Brazil's Selic rate has become an important indicator for global monetary policy trends, potentially foreshadowing future moves by the U.S. Federal Reserve.
The BCB initiated the Selic rate increase in March 2021 post-pandemic, a year ahead of the similar adjustment in the United States. Subsequently, Brazil started easing in August 2023, again preceding the Federal Reserve's rate cuts by over a year.
All 30 economists responding to additional questions in the poll foresee a further 100 basis point hike in March, leading to a rate of 14.25%, the highest since September 2016, as no Copom meeting is scheduled for February.
Tomas Goulart, an economist at Novus Capital, stated, "BCB has signaled the necessity to raise the Selic rate by at least another 200 basis points, with 100 in January and another 100 in March."
The median projection from the survey indicates that the Selic rate will peak at 15.00% in the next quarter, the highest level since June 2006 when it reached 15.25%.
The latest central bank survey of private economists forecasts consumer prices in Brazil to rise by an annual 5.08% by the end of 2025, surpassing the official inflation target of 3% +/- 1.5 percentage points.
Goulart highlighted a looming inflation challenge for the central bank, stating, "For inflation forecasts to converge, the Selic rate will need to reach at least 15.75% under current conditions, and Copom has indicated it will take necessary actions to achieve this."