By Marcela Ayres

BRASILIA (Reuters) – Brazil’s central bank projected on Thursday that inflation will hover near the official goal by the end of 2027, as it trimmed its estimates for this year and next in its quarterly monetary policy report.

After projecting earlier this month annual inflation at 3.6% for 2026, the relevant horizon for current policy decisions, policymakers unveiled a 3.2% forecast for the fourth quarter of 2027, the final period covered by the report.

The bank targets inflation at 3%, with a tolerance band of 1.5 percentage points in either direction.

Last week, it raised interest rates by 25 basis points to a near two-decade high of 15%, signaling a “very prolonged pause” in its action to curb consumer prices.

Despite an aggressive tightening cycle launched in September that has lifted the benchmark Selic rate by 450 basis points, Latin America’s largest economy remains resilient.

In the report, the central bank raised its 2025 GDP growth forecast to 2.1% from 1.9% in March, citing stronger than expected labor market conditions early in the second quarter and some boost to consumption and activity from recent changes to payroll-deductible loans for private sector workers.

Still, policymakers stressed they maintained expectations for a slowdown in economic activity over the current quarter and the second half of the year.

“This expected moderation stems from the continuation of a restrictive monetary policy, limited slack in production factors, prospects of slower global growth, and a decline in the agricultural boost seen in the first quarter,” they said.

Compared with the March report, the central bank lowered its 2025 inflation forecast by 0.2 percentage point to 4.9%, while the projection for 2026 declined by 0.1 percentage point.

“Among the factors pushing inflation higher are stronger-than-expected economic activity, while downward pressures include currency appreciation and falling oil prices,” policymakers wrote.