Brazil central bank sees inflation slightly above target in key policy horizon

By Marcela Ayres

BRASILIA, Dec 18 (Reuters) -

Brazil's central bank on Thursday projected inflation at a lower level but still exceeding its target in the horizon guiding its January interest rate decision, with convergence to the 3% goal only from 2028 onward.

In its quarterly monetary policy report, the bank pegged inflation at 3.2% in the third quarter of 2027, down from the 3.3% forecast in September.

Some investors had expected the central bank to begin a long-anticipated monetary easing cycle in January, a scenario that would have gained traction if the projection showed inflation on target in late 2027.

Still, most market participants see a first rate cut only in March.

According to the latest forecasts, policymakers expect annual inflation to hit the target in early 2028 and stay there through the end of its forecast horizon, in the second quarter of that year.

The report said the downward inflation revision reflects "more favorable short-term dynamics, improved expectations and lower fuel prices from a stronger currency and cheaper oil," partly offset by a higher output gap.

The bank paused a 450 basis-point tightening cycle in July and has held rates at a near 20-year high of 15%,

signaling

last week they would stay elevated for a "very prolonged period" to ensure inflation convergence.

The report also raised economic growth forecasts to 2.3% this year from 2.0%, and to 1.6% in 2026 from 1.5%. (Reporting by Marcela Ayres; Editing by Gabriel Araujo)