Rising Inflation Expectations Suggest Brazil's BCB Will Continue Hiking Cycle Through August

• Fitch Solutions revised its end-2022 interest rate forecast for Brazil to 13.75%, from 13.25% previously, as higher inflation expectations, rising rates globally and fiscal concerns will lead the Banco Central do Brasil (BCB) to extend its hiking cycle through its August 3 meeting. 
• Inflation is expected to moderate towards the end of the year, reaching 8.6% y-o-y from 11.7% in May. It is forecasted that it will remain far above the BCB’s 3.5% target through 2023, ending the year at 4.6%. 
• Inflation is expected to average 5.8% throughout 2022, and end the year at 4.6%. While this remains above the BCB target, it is expected that once a consistent disinflationary trend has been established, expectations will begin to stabilise, allowing the BCB to lower the rate to support economic growth. 
• In fact in 2023, the BCB is expected to begin loosening monetary policy by bringing the policy rate down to 9.75% by the end of the year as inflation eases.

(Source: Fitch Solutions)