Brazil's inflation above central bank target

Brazil’s inflation was above the target set by the central bank as of mid-December, reinforcing expectations of more interest rate rises.

The IPCA consumer price index rose 4.71% in the 12 months to December 12, according to statistics bureau IBGE.

The central bank’s target for the year is between 1.5% and 4.50%. When annual inflation is above the target, the governor of the central bank is required to publish an open letter to the finance ministry explaining why the monetary authority was unable to keep the rate within the target.

Earlier this month, the central bank raised the Selic policy rate to 12.25% from 11.25% and indicated that it could be hiked by a similar amount at the next two policy committee meetings during the first quarter of 2025.

"A high interest rate can put the financial profile of local companies at risk, mainly those firms that are unable to finance themselves with lower interest rates in international capital markets," Alberto Sogayar, an infrastructure lawyer at Sogayar e Alcântara Advogados, told BNamericas.

Given the inflationary pressures, analysts increased their forecasts for the Selic to 14.75% by the end of 2025, up from 12.25% a month ago, according to the central bank’s weekly survey of 100 economists published Monday.

The scenario will represent a challenge for Gabriel Galípolo, the central bank’s monetary policy director who will replace governor Roberto Campos Neto at the end of the year.

Galípolo was appointed by President Luiz Inácio Lula da Silva.