Damian Sassower, Chief EM Credit Strategist for Bloomberg Intelligence, discusses how the oil shock from the war with Iran is impacting emerging markets as rate decisions loom this week.
Brazil economists raised their inflation and benchmark interest rate forecasts for this year, adding tension to the monetary policy outlook just days before central bankers decide on borrowing costs.
Analysts’ 2026 year-end inflation estimate jumped to 4.1% from 3.91% previously, according a weekly central bank survey published Monday. The benchmark Selic will reach 12.25% in December, up from 12.13%, the poll showed.
The survey serves as a warning sign for policymakers ahead of their Wednesday rate decision. Brazil economists are watching for clues on how aggressively central bankers will lower the Selic, which is at a near two-decade high of 15%. Geopolitical tensions caused by the war in Iran and rising oil prices have prompted investors to pare back estimates for the opening cut, with financial markets now split on whether it will be a quarter-point or half-point reduction.
Hefty borrowing costs had been pushing Brazil’s inflation rate toward the 3% target. But the conflict, combined with domestic pressures that include a strong labor market, have economists bracing for price jumps.
Read More: Brazil Inflation Rises Just Above Forecast Before Bank Meets
“We expect inflation expectations to deteriorate further in the coming weeks given the large oil price shock, and to start to also impact 2027,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. wrote in a research note.
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