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(Bloomberg) — Brazil’s central bank raised its 2026 economic growth forecast as a strong labor market and government spending support activity while also undermining tight monetary policy that seeks to slow inflation to target.
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Board members led by Gabriel Galípolo now expect gross domestic product to expand 2% this year, up from 1.6% in March, according to their monetary policy report published Thursday. Analysts surveyed by the central bank also see the economy expanding about 2% in the same period.
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Policymakers attributed the upward revision to a surprisingly robust first quarter, a brighter outlook for agriculture and mining, and stronger domestic demand supported by both fiscal and credit stimulus.
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At the same time, they see more tepid expansion in coming months. “The outlook remains one of moderate growth for the current quarter and throughout the second half of the year.”
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Brazil central bankers lowered the benchmark Selic by a quarter-point for the third straight meeting last week, to 14.25%, while saying the size of the easing cycle still depends on incoming data. In a post-decision statement many analysts viewed as ambiguous, policymakers said economic growth and inflation had both accelerated, warning that stimulus measures could fuel consumer-price increases that are already running above the 3% target.
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In recent months, President Luiz Inácio Lula da Silva’s government has rolled out measures including a plan to help families renegotiate billions of reais in debts, subsidized credit lines and the temporary elimination of some fuel taxes. The leftist leader is seeking a fourth term in elections this October.
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In their report, policymakers said there was a steep rise in inflation estimates for 2026 due to a positive output gap and tight labor market, in addition to higher energy prices stemming from the Middle East war. Forecasts for 2027 and 2028 also become more unanchored.
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“Since the previous Report, inflation has risen, standing above the tolerance band around the inflation target, and inflation expectations have deteriorated”, policymakers wrote.
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