Focus Survey Raises Brazil’s End-2027 Rate Forecast to 12.50%
Key Facts
Economists raised their forecast for Brazil’s benchmark interest rate to 12.50% at the end of 2027, from 11.75% in the previous survey, according to the first weekly Focus survey after President Luiz Inácio Lula da Silva’s re-election on October 25. The revision reflects a repricing of the rate path over the coming year, alongside higher inflation expectations and lower growth estimates. Economists also raised their forecast for the Selic rate at the end of 2026 to 13.50% from 13.25%. The figures come ahead of the central bank’s Monetary Policy Committee meeting, which runs on November 3 and 4. Investors are focused on whether the committee will pause rate cuts and on the guidance it will give about the path ahead.
The inflation forecast for the end of 2027 rose to 4.76% from 4.34% in the previous survey, while actual price increases reached 4.62% in the twelve months through mid-October, according to Reuters. The central bank targets inflation of 3%, with a tolerance band of 1.5 percentage points above or below. The new forecast therefore sits above the official target, though it remains within the stated tolerance band. In the opposite direction, economists cut their estimates for gross domestic product growth to 1.76% in 2026 and 1.2% in 2027, from 1.8% and 1.31%, respectively, in the previous survey. The revision combines expectations of slower growth, higher inflation and elevated interest rates, putting borrowing costs and the economic outlook at the center of the monetary policy debate.
The revision also covered currency forecasts: economists now expect the real to reach 5.34 per dollar at the end of 2026 and 5.40 at the end of 2027, compared with previous forecasts of 5.05 and 5.15, respectively. The exchange-rate forecast was adjusted after market turmoil following Lula’s win, which dashed bets on a victory by his rival, Flavio Bolsonaro, according to Reuters. In the week before the November 3 report, the real lost 8.5% against the dollar and the Bovespa index fell about 18%. In the first trading session after the election, on October 26, the index closed down 13.9%, while the real fell more than 11% in early spot trading. Brazil’s exchange halted trading for 30 minutes after the Bovespa fell 10% from its previous close, according to its operator, B3.
These moves come as households and the government face substantial financing burdens. Government interest payments reached 9% of GDP in the twelve months through September, the highest share since January 2016, according to Reuters. Household debt also hit a record equivalent to 50.1% of annual income, while debt payments consumed a record 29% of income. At the same time, the unemployment rate was 5.2% in the rolling quarter from July to September, the lowest third-quarter rate since 2012, according to the Brazilian Institute of Geography and Statistics. These figures present policymakers with a mixed picture: a strong labor market on one hand, and high debt and interest costs on the other.
Most participants in a Reuters poll ahead of the decision expected the central bank to hold the rate at its current level, with 33 of 48 economists favoring that outcome. The median forecast showed the rate staying at 13.75% through the second quarter of 2027, while the central bank had cut rates by 25 basis points at each of its previous five meetings. An M&G fund manager said the bank’s message could matter more than the decision itself: "Whether they cut rates by 25 basis points or leave them unchanged, I think the message will matter even more than the actual policy rate." The decision is due on November 4, the second day of the Copom meeting. The central bank will publish the meeting minutes on November 10 at 11:00, giving the market details of the discussions after the decision is announced.