By Gabriel Burin
BUENOS AIRES (Reuters) - Brazil's central bank will raise its benchmark interest rate by 100 basis points on Jan. 29, with more to increases follow, taking the cost of borrowing to the highest in nearly two decades by mid-year, a Reuters poll showed.
The expected increase on Wednesday, firmly signalled by policymakers in recent weeks, would be Banco Central do Brasil's (BCB) second full percentage point rise after it surprised the markets in December with an increase of that size.
As concern mounts in many countries over inflation, Brazil's rates are now expected to end significantly higher than thought just once month ago.
This month's decision will be the first under newly-appointed bank governor Gabriel Galipolo, who faces rising domestic challenges as well as heightened global volatility.
Brazilian policymakers, known as Copom, are expected to raise the benchmark Selic by 100 basis points more to 13.25% from 12.25% on Jan. 29 in view of inflation expectations, according to the median estimate of 38 economists polled Jan. 21-24.
Apart from its importance to Latin America's No.1 economy, Brazil's Selic has gained relevance as a guide for global monetary policy trends, potentially giving an indication of the future direction of U.S. rates.
The BCB first hiked the Selic in March 2021 from a low during the pandemic, preceding a similar shift in the United States by a year. Then, it began easing in August 2023 - again, a little more than a year ahead of the start of the Federal Reserve's latest rate cuts.
THIRD 100 BPS INCREMENT EXPECTED
All 30 economists who answered extra questions on the bank's next move said they expected a third 100 basis points increment in March to 14.25%, the highest since Sept. 2016. No Copom meeting is scheduled in February.
"BCB has already made clear in its guidance the need to raise the Selic rate by at least another 200 basis points, with 100 basis points coming at the January meeting and 100 more in March," said Tomas Goulart, economist at Novus Capital.
The median forecast from the poll shows the Selic rate peaking at 15.00% next quarter. That would be the highest since June 2006, when it stood at 15.25%.
In a December poll, the Selic had been expected to peak at 13.50% in the second quarter, slightly below its 2023 peak of 13.75%.
Consumer prices in Brazil are forecast to rise an annual 5.08% at the end of 2025 in the latest weekly survey by the central bank among private economists, advancing further above an official inflation target of 3% +/- 1.5 percentage points.
Novus Capital's Goulart was one of the economists to foresee a bigger inflation challenge for the central bank.
"In order for inflation projections to converge, the Selic rate needs to reach at least 15.75% under current conditions, and Copom is saying it will do everything it can to make this happen," Goulart said.
(Other stories from the Reuters global economic poll)
(Reporting and polling by Gabriel Burin in Buenos Aires; editing by Barbara Lewis (JO:LEWJ))