Brazil central bank sees inflation above target for years as oil prices lift outlook

By Marcela Ayres

BRASILIA, March 26 (Reuters) - Brazil's central bank said on Thursday that inflation is expected to pick up later this year, largely driven by higher oil prices, and remain above its 3% target throughout its entire forecast horizon.

The bank estimated annual inflation at 3.1% in the third quarter of 2028, the furthest period of its projections, according to a quarterly monetary policy report.

The forecast comes as a spike in oil prices following the U.S.-Israeli conflict with Iran stoked global inflation concerns, one of the reasons behind the bank's smaller than initially expected interest rate cut last week.

Policymakers said annual inflation is expected to fall to 3.6% in the first quarter of 2026, but then trend higher through the end of this year, "resuming a downward path toward the relevant horizon, while remaining above the target."

For the central bank's relevant monetary policy horizon, currently the third quarter of 2027, inflation projections were hiked by 0.1 percentage point from the previous report.

"Among the factors contributing to the increase are higher oil prices and a revision to the output gap," policymakers said.

Brazil's central bank last week began a long-anticipated easing cycle, cutting rates by 25 basis points to 14.75% but offering no forward guidance.

After already disclosing last week a 3.9% inflation forecast for this year, the central bank also revealed in the report a 3.3% projection for full-year 2027.

The report also showed the central bank maintained its estimate for 1.6% gross domestic product (GDP) growth this year, unchanged from the December report. (Reporting by Marcela Ayres; Editing by Gabriel Araujo)