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XP Forecast 10% Selic Rate at Year-End, With Upward Bias

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  • XP calculations suggest that a Selic rate at or above their 10.0% forecast would be necessary to bring 2025 inflation expectations to the target (the relevant horizon for monetary policy). Particularly since they see the market's 2025 forecast rising further in the coming weeks. Thus, XP still see two additional 25bps cuts, bringing the Selic rate to 10.00%. Still, the risk seems tilted to the upside, and they believe markets should not rule out a pause at the next meeting.
  • The exchange rate should remain under pressure in the short term, amid increased uncertainty in the global and domestic economic outlook. Part of the recent FX adjustment tends to be long-lasting, which has led XP to revise their year-end projection from 4.70 to 5.00.
  • However, XP eventually see USDBRL falling into year-end, but to levels higher than those in their previous baseline scenario. This expectation considers the effects of the increase in the interest rate differential throughout the year and some improvement in the terms of trade. XP expect a nominal BRL depreciation in 2025, to 5.15.
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  • XP calculations suggest that a Selic rate at or above their 10.0% forecast would be necessary to bring 2025 inflation expectations to the target (the relevant horizon for monetary policy). Particularly since they see the market's 2025 forecast rising further in the coming weeks. Thus, XP still see two additional 25bps cuts, bringing the Selic rate to 10.00%. Still, the risk seems tilted to the upside, and they believe markets should not rule out a pause at the next meeting.
  • The exchange rate should remain under pressure in the short term, amid increased uncertainty in the global and domestic economic outlook. Part of the recent FX adjustment tends to be long-lasting, which has led XP to revise their year-end projection from 4.70 to 5.00.
  • However, XP eventually see USDBRL falling into year-end, but to levels higher than those in their previous baseline scenario. This expectation considers the effects of the increase in the interest rate differential throughout the year and some improvement in the terms of trade. XP expect a nominal BRL depreciation in 2025, to 5.15.