Credit Suisse now forecasts Brazil benchmark SELIC rate at 11.5% in 2022

RIO DE JANEIRO, BRAZIL – In a report released Tuesday, the private lender also increased its estimates for the rise in the IPCA (Extended National Consumer Price Index) this year and next, to 9.8% and 5.8%, respectively. Earlier projections, from only four days ago, were for 9.1% and 5.5%.

According to Credit Suisse, revisions come after Petrobras’ recently announced increase in fuel prices and a much higher than expected jump in the IPCA-15 in October.

The index, considered a preview of the official Brazilian consumer inflation, had its highest hike for the month in 26 years, according to Tuesday’s data.

“Overall, today’s result continues to show very unfavorable dynamics for inflation, both quantitatively and qualitatively,” said the private bank in a report signed by the bank’s chief economist in Brazil Solange Srour and by economist Lucas Vilela.

With worsening inflationary pressures combined with the country’s “weakening fiscal framework” following the government’s plans to breach the spending cap, Credit Suisse said the Central Bank will need to raise the SELIC rate faster and to a higher level in order to contain expectations of rising prices.

The Swiss lender’s scenario now foresees two interest rate hikes of 150 basis points in the next two Monetary Policy Committee (COPOM) meetings in October and December, a 100 basis points hike in February 2022, a 75 basis points hike in March and a 50 basis points rise in May next year. The rate would then reach 11.5% per year at the end of the Central Bank’s monetary tightening cycle.

Credit Suisse’s former projection, also made only four days ago, was that COPOM would raise the SELIC by 125 basis points in its two-day meeting this week, which ends Wednesday. Last week’s estimate for the rate level in 2022 was also lower, at 10.5%.