Incorporating the revision of the Central Bank’s output gap, Selic is expected to reach 12.50% at the end of the tightening cycle – 09/27
In the September Quarterly Inflation Report, the Central Bank highlighted the strong performance of economic activity in the first half and revised the output gap curve to the positive field. In terms of modeling, the increase in the output gap offset the negative effect of rising interest rate expectations, with the 100-point cycle currently included in the Focus survey proving insufficient to anchor expectations, which remain above the target until the first quarter of 2027. Given this scenario and considering our exchange rate expectation of R$ 5.50 for 2024, we revised our terminal rate from 12% to 12.50% at the end of the monetary tightening cycle, incorporating three more 50-point hikes in the upcoming meetings, with a final adjustment of 25 points in March 2025.
On the inflation front, we revised our expectations for the IPCA from 4.5% to 4.3% in 2024. For 2025, especially with the expected improvement in the hydrological scenario, ending the year with a green flag, we revised our estimate for the IPCA from 3.7% to 3.5%. On the fiscal side, the bimonthly revenue and expenditure report disappointed market expectations. Finally, in the United States, we revised our projection for the Fed Funds rate in 2024 to 4.25%.
For more information, please check our Weekly Report 83.
