More Interest Rate Hikes In Brazil As Inflation Outpaces Expectations

• On June 16, 2021, the Brazilian Central Bank (BCB) raised the Selic (policy rate) by 75bps. It is anticipated that it will hike its benchmark Selic target interest rate to 6.25% by the end of 2021, an upward revision from Fitch Solutions’ previous forecast of 5.00%. 
• The revision reflects inflation that has continued to surprise to the upside over recent months, which has pushed up market expectations for hikes and led the BCB to adopt a more hawkish policy stance. 
• The June 2021 interest rate hike was the central bank's third consecutive hike and in line with the guidance provided with its prior decision.  
• The agency forecasts that inflation will average 7.70% through the end of 2021, well above the 5.25% upper target, due to rising electricity costs, high commodity prices and supply constraints. 
• Risks to the forecasts remain to the upside, given the likelihood of volatile market sentiment and the potential for elevated inflation to become sticky.

(Source: Fitch Solutions)