Brazil's BCB Is Likely To Hike To 14.00% In September Before Ending Cycle

• Fitch Solutions revised its end-2022 interest rate forecast for Brazil from 13.75% to 14.00%, after the Banco Central do Brasil (BCB) left the door open to extending its hiking cycle through its September meeting. The total hikes in the BCB’s hiking cycle since February 2021 currently amounts to 1,175bps, one of the most aggressive cycles in the world.
• It is anticipated that the BCB will enact one final 25bps rate hike at its September meeting, as inflation expectations are not expected to moderate significantly for Q1 2024 - the period on which the BCB has indicated that they are focused on, mitigating the impact of temporary tax measures. Furthermore, Brazil's labour market has performed admirably this year, providing the bank additional leeway to raise interest rates.
• The BCB will begin progressively lowering its benchmark rate in 2023, to reach 11.00% by the end of the year. This is a significant increase above Fitch's earlier prediction of 9.75%, reflecting both the higher end point for 2022 and the higher inflation revision for 2023, which will likely push the BCB to take a more gradual approach. Given that rates are expected to stay relatively high in the medium term, borrowing costs in Brazil will remain high, impacting the country's economic development prospects.

(Source: Fitch Solutions)