Market Raises Interest and Inflation Forecasts After Lula's Reelection
Focus Report shows worsening expectations for 2027 and 2029 as the government debates fiscal and tax policy changes.
The first Focus report following Lula's reelection shows an increase in inflation and interest rate projections for the coming years. The IPCA estimate for 2027 rose from 4.34% to 4.76% which exceeds the official target ceiling. For 2029, the inflation expectation climbed to 3.98%.
Projections for the Selic rate also saw an increase. The market now estimates that the benchmark interest rate will end 2027 at 12.50% compared to the previous forecast of 11.75%. For 2028, the Selic estimate jumped from 10% to 11%.
This stressful scenario is fueled by debates over the new term's economic policy. Proposals regarding interest rate definitions are circulating including ideas for a programmed reduction of the Selic to ease the cost of public debt. Market projections for the public sector's net debt have also been revised upward.
In parallel, the government is discussing measures to increase tax revenue. Possibilities include charging IOF on currently exempt investments and raising the tax rate on goods and services. The economic team is also evaluating new cuts to federal tax benefits.
Financial markets reacted with a rise in future interest rates reflecting uncertainty over economic management and the composition of the new ministerial team. A lack of clarity regarding plans for the next four years keeps pressure on Brazilian assets.
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