UBS BB Raises Selic Projection To 11.75% In 2024, Sees Peak At 12.25%

(MENAFN- The Rio Times) UBS BB raised its Selic rate projection for the end of 2024 from 11.50% to 11.75% and expects another increase in early 2025.

"The Monetary Policy Committee (Copom) started at a gradual pace, but it will likely not be a gradual cycle," the bank's economists say.

This update comes after the Brazilian Central Bank (BC) raised the rate by 0.25 percentage points (p.p.) to 10.75% per year , in line with market expectations.

In addition to the 0.50 p.p. increase expected for November, the UBS economists have revised the December increase from 0.25 p.p. to 0.50 p.p. and added another 0.50 p.p. increase in January 2025.

The changes are driven by a tighter production gap. "Our models suggest, with the updated Central Bank forecasts, that we will need a higher interest rate," explain Alexandre de Azara, Fabio Ramos, Rodrigo Martins, and Roque Montero.



The peak of the new monetary tightening cycle is now expected to be at 12.25%. However, the economists note that the forecasts may change after the new production gap in the third-quarter inflation report, scheduled for September 26.

The UBS economists still believe that there will be cuts in the Selic rate in 2025. However, they have delayed the start of the monetary easing to June, compared to March previously, due to their inflation projections.

"Our expectation for rate cuts is based on our inflation forecast being about 0.5 percentage points lower than the consensus. Our terminal Selic rate at the end of 2025 is lower than 10%, stopping at 9.75%," they say.

UBS BB Raises Selic Projection to 11.75% in 2024, Sees Peak at 12.25%

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