SAO PAULO (Reuters) – Brazil’s finance minister expects inflation to “surprise positively” this year as the central bank tightens its monetary policy, but acknowledged in an interview aired late on Wednesday that the annual rate should remain above 4.5% until June.
Fernando Haddad told TV channel GloboNews that forecasts of a bumper crop this year and the recent gains the Brazilian real notched against the U.S. dollar, after hitting all-time lows in December, should help put inflation under control.
Private economists polled by the central bank on a weekly basis currently forecast inflation in Latin America’s largest economy to end 2025 at 5.51%, exceeding the upper limit of the monetary authority’s 1.5% to 4.5% target range.
“I think we might have positive surprises when compared to market expectations, just like we had for GDP,” Haddad said, referring to the growth of Brazil’s economy in 2024, which was much stronger than initially expected by market participants.
At the same time, he acknowledged that inflation would “probably” remain above 4.5% by June, as predicted by the central bank in the minutes of its latest monetary policy meeting.
Haddad attributed it to the lagged effects of tighter monetary conditions, but said that once prices start to slow down the response will likely be “much faster” than many in the financial market think.
Policymakers at Brazil’s central bank raised their benchmark interest rate by 100 basis points to 13.25% last month and signaled a matching hike in March.
Haddad compared elevated borrowing costs to a medicine in the interview, saying that they should be applied but “at a dose that does not kill the patient.”
President Luiz Inacio Lula da Silva has been a long time critic of what he sees as excessively high interest rates in the country.
(Reporting by Fabricio de Castro)
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