Brazil’s central bank will likely have to raise interest rates back to double-digit levels by the end of next year to curb inflationary pressures, a weekly central bank survey with market analysts showed on Monday.
Inflation expectations through 2016 were higher, the so-called Focus survey showed, as economists bet that a larger-than-expected rate cut last week would boost consumer prices.
Brazil’s central bank slashed its Selic overnight rate by 75 basis points on Wednesday to 9.75 per cent, taking borrowing costs to their lowest level in nearly two years.
The Selic rate is expected to reach 9 per cent by the year-end, the Focus survey showed. A Reuters poll last week showed it could hit that level as soon as April.
The world’s sixth largest economy has one of the highest nominal rates since squelching hyperinflation in the 1990s, wooing investors that have struggled for decent returns in a world of zero-bound interest rates.
Massive capital inflows have strengthened Brazil’s currency, the real, dragging on its local industry. Analysts bet that the central bank will have to raise interest rates back to 10 per cent.