Brazil’s central bank will intensify its drive to raise interest rates with a big 75 basis point hike on December 11, a Reuters poll showed, which could also signal a more restrictive monetary policy next year.
This would be the third straight increase as inflation accelerates, following two smaller rises of around 25 basis points in September and 50 basis points last month, leaving Selekbank’s benchmark interest rate at 12%.
The acceleration of the pace of raising interest rates at the Central Bank of Brazil coincides with the caution recently expressed by the US Federal Reserve about cutting interest rates in the face of the risk of consumer prices rising again in 2025.
Most analysts, 31 out of 40, expected an increase of 75 basis points on December 11th to 12% from the current 11.25%. Five called for a more moderate increase of 50 basis points, while four expected a full percentage point larger increase.
The survey was conducted from December 2 to 6.
The new head of BCB said current conditions pointed to “higher interest rates for longer” and that the bank would not intervene in foreign exchange markets despite turmoil there that has stoked imported inflation pressures.
Consumer prices in Brazil rose more than expected in the month to mid-November, with annual inflation accelerating to 4.77%, above the upper end of the central bank’s target range of 1.5% to 4.5%.
All 25 respondents who answered a separate additional question about the Colombian Central Bank’s next action expected another increase in interest rates in January and among them, 19 expected a 75 basis point increase, four expected a 50 basis point increase, and two expected a full percentage point increase.
Looking ahead, the mortgage interest rate is expected to peak at 13.50% in the second quarter of next year and to remain at this level until the last three months of 2025.
The median forecast from a smaller sample is that it would then fall by half a percentage point to 13.00%.
The overall outlook was tighter than a November poll, which expected the loan interest rate to reach a high of 12% in the first quarter, before cuts of 25 basis points in the July-September period and 75 basis points later, ending 2025 at 11%.
“Currency depreciation, inconsistent inflation expectations, unsustainable debt dynamics, and hyperinflation in goods and labor markets support real interest rates well above neutral,” analysts at Deutsche Bank wrote in a report this week.
“The cycle remains open, and depends on expectations of exchange rates and inflation, which may respond to interest rate increases. Although we expect 14.5% at the end of the cycle, risks tend towards higher rates, and are stable for most of the year (2025).”
