XP raises forecast for Selic to 12.75%, with end of tightening cycle in June

This Monday (14th), XP raised its forecast to the level of the Selic rate at the end of the current cycle of monetary tightening by the Central Bank, expecting interest rates to reach 12.75% per year in June, with room for the beginning of possible loosening process in December.

“The outlook for inflation in Brazil has turned out to be more challenging than we expected, which justifies a more intense monetary adjustment” than the previous baseline projection, which was a terminal Selic of 11.75%, said Caio Megale, economist head of XP, in a report.

According to the broker’s new estimates, the basic interest rate will be raised by 1 percentage point in March, 0.75 point in May and 0.25 point in June.

“With the Selic at such a contractionary level, we still see room for the start of the monetary easing cycle in December,” Megale said.

XP projects that the interest rate reduction will start with a 0.50 percentage point cut, followed by decreases of 0.75 point, until the Selic reaches the neutral level of 7.50%.

Last week’s IBGE data showed that the IPCA rose 0.54% in January, slowing from a 0.73% advance in December, but recording the highest rate for a first month of the year since 2016.

In 12 months, the index jumped 10.38%, after ending 2021 with a rise of 10.06%, well above the target ceiling.

XP maintained its forecast that the IPCA will rise by 5.2% in 2022 as a whole, although it recognizes a “bullish bias” for the account. Its projection for consumer inflation in 2023 is 3.25%.

Source: CNN Brasil

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