Swiss UBS now sees Selic at 10.25% in 2022 after two interest hikes of 1.5% each this year

RIO DE JANEIRO, BRAZIL – UBS BB made significant revisions in its estimates for interest rates and inflation in Brazil for 2022, now predicting that the benchmark Selic rate will reach double digits after acceleration to 150 basis points in the pace of rate increases in each of the last two Copom meetings this year.

Next Wednesday, October 27, the Central Bank should raise the Selic by 150 basis points, and this should be repeated at the meeting on December 7 and 8. UBS had previously forecast an increase of only 100 basis points for both.

“As we believe that a timely decision is necessary, we are changing the pace (expected to raise interest rates) for the next two meetings,” said Alexandre de Ázara (chief economist at UBS BB) and Fabio Ramos (economist) in a report on Thursday.

With these increases, the Selic interest rate would close 2021 at 9.25%, against the current 6.25% and the previous projection of 8.25%.

JPMorgan also increased on Thursday its projection for the increase in the Selic rate in each of the next two Copom meetings, but only to 125 basis points.

UBS BB maintained its forecast that the Central Bank will raise interest rates by 100 basis points in the first Copom meeting of 2022, in February, when the monetary tightening cycle will end.

Thus, the economy’s primary interest rate would end next year at 10.25% nominal, the highest level since July 2017 and 825 basis points above the historical minimum of 2% that was in effect between August 2020 and March 2021.

“Whatever it takes is whatever it takes,” economists said in the report, referring to a recent talk by the BC’s president, Roberto Campos Neto, that the autarchy will do “whatever it takes” to anchor inflation in the medium and long term.

The expression is famous in the financial community after its use by Mario Draghi, president of the European Central Bank (ECB) from 2011 to 2019. In 2012, Draghi said that the ECB was “ready to do whatever it takes to preserve the euro.” The statement is credited for rescuing the currency bloc, whose existence was threatened by an acute debt crisis in the period.

UBS BB also raised its forecast for IPCA inflation in 2022, from 3.5% to 4% — thus staying above the official target for next year (3.50%).