UBS BB raises Selic projection to 11.75% in 2024 and sees peak at 12.25% (Image: Disclosure/Central Bank)
O UBS BB raised the projection to the Selic by the end of 2024 from 11.50% to 11.75% and now foresees a further increase at the first meeting of 2025. “The Monetary Policy Committee (Copom) started at a gradual pace, but it probably won't be a gradual cycle,” they say.
The update comes after the Banco Central (BC) Brazilian raise the rate by 0.25 percentage points (pp), to 10.75% per year — in line with market expectations.
In addition to the 0.50 pp increase expected for November by UBS, economists changed the December increase from 0.25 pp to 0.50 pp and added another increase of the same level in January 2025.
Alexandre de Azara, Fabio Ramos, Rodrigo Martins and Roque Montero explain that the changes stem from the tighter production gap. “Our models suggest, with the Central Bank’s updated forecasts, that we will need a higher interest rate,” they say.
Now, the peak of the cycle of the new monetary tightening by the Central Bank should be 12.25%, according to the bank. Economists point out, however, that the forecasts may change after the new production gap in the third-quarter inflation report, scheduled for September 26.
When will the Selic rate cuts return?
UBS economists reinforce that they still believe there will be cuts in the Selic rate in 2025.
However, Azara, Ramos, Martins and Montero postponed the start of monetary easing to June, compared to March previously, due to their inflation projections.
“Our expectation for rate cuts stems from our inflation forecast being about 0.5 ppt lower than the consensus. Our terminal Selic rate at the end of 2025 is less than 10%, stopping at 9.75%,” they say.