BRASILIA (Reuters) – Brazilian inflation will run significantly above the central bank’s target this year, forcing it to raise interest rates faster than previously anticipated, starting with half a percentage point hike next week, economists at Barclays said on Tuesday.
In a note to clients, they raised their year-end inflation forecast to 4.5% from 3.9%, adding that the risks remain tilted to the upside. This comes only a month after they raised the outlook from 3.6%.
The central bank’s 2021 goal is 3.75%, with a 1.5 percentage point margin of error on either side. The last official figures showed inflation running at 4.6% in January, fueled by the continued strength of food and commodity prices.
Barclays economists now expect the central bank’s rate-setting committee, known as Copom, to raise the benchmark Selic rate next week by 50 basis points to 2.50%, and continue lifting it to 4.50% by the end of the year.
“The (Copom) would not want to run the risk of ‘falling behind the curve’ in the market’s eyes, as that could impose a larger cost to monetary policy down the line should credibility be lost in that process,” they wrote.
(Reporting by Jamie McGeever; Editing by Chizu Nomiyama)
