The Central Bank estimates that 12-month accumulated inflation will fall to 3.2% – very close to the official target of 3% – during the second quarter of 2027, a time which for now constitutes the relevant horizon for monetary policy, where the effect of rising interest rates is expected to be more intense.
The projection appears in the press release in which British Columbia announced its decision to maintain its rate, the Selic, at a stifling rate of 15% per year. Even though the IPCA appears to be heading toward comfortable levels, the country’s prospects for a return to civilized interest rates remain clouded by economic and political obstacles.
According to the most consensus projections from market analysts, gathered through research in British Columbia, there should be an even more aggressive reduction in Selic in 2026, which, in theory, coincides with the government’s convenience in an election year. There would be five reductions of 0.5 percentage points, starting from the second meeting of the Monetary Policy Committee (Copom), in March, and another of 0.25 in December.
In this scenario, the country’s next administration will take over in 2027 with interest rates of 12.25% per year. It should be noted that this will always be a very high rate, incompatible with sustainable growth and contaminated by fiscal problems and various uncertainties.
Market expectations for inflation developments are less optimistic than those in BC, pointing to an index of 3.8% at the end of 2027. The more resilient services inflation measures are still around 6% per year, some rising, compared to an IPCA of 4.4% accumulated in the 12 months to November.
In other words, some central indicators of monetary policy are still out of place. Perhaps this is why the statement from the last Copom meeting did not give clear signs of the start of the interest rate reduction cycle.
For now, according to British Columbia’s own guidelines, the conditions necessary to start monetary easing are lacking. Additionally, certain political issues could be seen as obstacles to lowering interest rates.
After the presidential elections, whoever wins will face a very difficult budgetary situation, which will require immediate action.
The outcome of the elections will be decisive in shaping expectations regarding the country’s immediate economic destiny. In this regard, there are clear signs that the re-election of Luiz Inácio Lula da Silva (PT) would affect essential prices, such as the exchange rate – at least so far, where the PT member does not care about the adjustment of public accounts.
If the most competitive candidates do not present credible plans to contain deficits and debt, the risk of financial turmoil will be greater. Unless expectations and current inflation point to a clear downward trend, the assumption of market tensions could prompt British Columbia to be more cautious.
editorials@grupofolha.com.br
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