BUENOS AIRES, Oct 22 (Reuters) - Brazil's benchmark interest
rate is set to rise at least another 100 basis points on
Wednesday as the central bank reacts against fears of worsening
inflation expectations from fiscal worries, a Reuters poll
The bank's rate-setting committee - known as Copom - will
hold its hawkish stance, with policymakers possibly expressing
concerns about the introduction of new welfare plans that may
breach stringent fiscal rules.
Roberto Campos Neto, Banco Central do Brasil's chief, has
become the most aggressive hiker this year, raising the Selic
benchmark rate by 425 basis points even as the economy recovers
from a coronavirus pandemic-related recession.
While the median estimate of 31 economists in a poll taken
Oct. 18-22 reflected an expected increase of the Selic rate to
7.25% from 6.25% at the Oct. 27 meeting, four global banks
lifted their predictions by 25 basis points or more in the last
JPMorgan Chase & Co, Morgan Stanley and Credit Suisse are
now predicting a 125 basis-point increase. UBS is looking at
150. The four lenders published their updated views on Thursday
They could be followed by others in raising their early
forecasts for a 100 basis-point move after fears over the budget
flared up this week. A majority of 25 who responded on Monday
and Tuesday saw a 100 basis-point move, 4 bet on 125, and 2 on
"Copom cannot change its mind about fiscal risks and give up
trying to bring inflation to target," Jose Francisco Goncalves,
chief economist at Banco Fator, wrote in a note. "We adjust our
call to two hikes of 150 (basis) points in the next meetings."
Brazil's economy minister opened the door this week to a
one-off breach of a constitutional spending cap to pay for a
bigger welfare program proposed by Brazilian President Jair
Domestic markets tumbled as the minister's comments appeared
to contradict earlier assurances from Bolsonaro that Brazil
could increase payouts without stretching its strict fiscal
Part of this year's inflation surge in Brazil has been
blamed on elevated economic uncertainty arising from the
government's inability to pass significant reforms to rein in
the deficit and cut down gross debt which is now equal to 82.7%
Brazil's consumer prices rose in September at the fastest
pace in more than five years, climbing 10.25% in 12 months.
Inflation is well above this year's target of 3.75%, with a 1.5
point tolerance margin.
In the poll, 24 economists now see the Selic reaching 9.0%
in the first quarter of 2022, 50 basis points more than in the
previous survey last month. The cost of lending should stay at
that level until December, and fall only gradually after that.
Bolsonaro's popularity has been dropping https://www.reuters.com/world/americas/bolsonaros-support-hits-fresh-low-ahead-brazil-2022-vote-poll-shows-2021-09-16
ahead of the 2022 election due to rising inflation and his
hands-off approach to the pandemic. He has looked to expand a
welfare program he had compared to vote-buying schemes during
his 2018 campaign.
"Given inflation and election dynamics, the risks for the
Selic rate are heavily skewed to the upside," Felipe Sichel,
Banco Modal's strategist, said. "The central bank will point to
the need of higher rates to fight rising consumer prices."
(For other stories from the Reuters global economic poll
(Reporting and Polling by Gabriel Burin in Buenos Aires
Editing by Matthew Lewis)