Economists Lift Brazil Rate and Inflation Outlook After Lula's Surprise Reelection

What the survey showed

Brazil's central bank published its weekly economist poll on Tuesday, the first update since President Luiz Inácio Lula da Silva won the runoff in a surprise result. Forecasters raised their call for the benchmark Selic to 13.5% in December from 13.25% previously.

Expectations further out also rose. The end 2027 view moved to 12.5% from 11.75%. For 2028, economists now pencil in 11% after a full percentage point increase, and the 2029 outlook ticked up to 10.25% on a quarter point bump. Forecasters now see inflation exceeding the 3% target each year through 2029 by an even wider margin.

Markets react

On Oct. 25, Lula upended his far right challenger and prediction markets, taking the presidential runoff despite having lost the initial vote weeks earlier. The shock outcome sparked a selloff that is still filtering through assets. After Tuesday's survey, the real slipped as much as 1.4%, longer dated interest rate futures rose in morning trading, and the Ibovespa opened down 1.5%.

Policy backdrop and what to watch

Investors had bet a leadership change would bring tighter fiscal policy and a friendlier stance toward business, so the result caught those wagers offside. Most analysts now expect policymakers to pause their easing cycle at Wednesday's decision and hold the policy rate at 13.75%.

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Why it matters for your portfolio

Higher rate expectations out to 2029 mean a pricier cost of capital and pressure on duration trades in Brazil, while a softer real and rising futures point to tighter financial conditions. The bottom line: earnings sensitivity to rates and currency stays front and center for Brazilian assets until investors see clearer fiscal anchors.

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