Brazil’s Selic Rate to Hit 15.75% by 2025: Morgan Stanley

Morgan Stanley predicts Brazil’s Selic rate will reach 15.75% by Q3 2025, signaling a challenging economic landscape. This forecast comes as the country grapples with persistent inflation and a weakening currency. The Central Bank of Brazil has already begun tightening monetary policy, raising rates to 12.25% in December 2024.

Inflation remains a key concern, with the IPCA index hitting 4.83% at the end of 2024. Economists anticipate further acceleration in 2025, potentially reaching 5% to 6%. This trend has been exacerbated by the Brazilian real’s depreciation, which has surpassed 6 reals per US dollar.

The country’s fiscal situation adds another layer of complexity. High interest rates are increasing public debt costs, as a significant portion of Brazil’s debt is linked to the Selic rate or inflation. This fiscal pressure, combined with tighter monetary conditions, is expected to slow economic growth in 2025.

Brazil’s Selic Rate to Hit 15.75% by 2025: Morgan Stanley. (Photo Internet reproduction)

External factors also play a role in Brazil’s economic outlook. U.S. monetary policy and potential trade shifts under the Trump administration could impact capital flows. Additionally, global commodity prices, crucial for Brazil’s exports, may face pressure from slower worldwide growth.

Brazil’s Selic Rate to Hit 15.75% by 2025: Morgan Stanley

The Central Bank of Brazil now faces the challenge of curbing inflation without severely disrupting the economy. This balancing act will be crucial for maintaining credibility in its inflation-targeting regime. However, long-term stability may require more comprehensive fiscal reforms.

As Brazil navigates these economic challenges, investors and policymakers are closely watching. The interplay between monetary tightening and fiscal discipline will be key to addressing the country’s economic vulnerabilities and shaping its future prospects.