(Bloomberg) -- Brazil’s central bank chief said consumer price forecasts will improve, pushing back hours after a closely-watched survey showed economists lifting their 2024-2026 inflation estimates further above target.

While cost-of-living estimates have risen again due to “recent noise,” they should stabilize and then improve with time, Roberto Campos Neto said at an event on Monday. “I think one can be optimistic,” he said.

Swap rates extended drops as Campos Neto also said that, in time, markets will understand the bank’s split rate decision this month was technical. Contracts maturing in January 2027 fell 12 basis points while most rate curves across Latin America remained relatively stable during US and UK holidays.

Read More: Brazil Swap Rates Drop as Campos Neto Sees CPI Forecasts Falling

Brazil investors are testing the central bank on its commitment to the 3% inflation target, and most traders expect policymakers to pause their easing cycle in June. Last week, analysts sounded the alarm on the consumer price outlook at a private meeting with some of the monetary authority’s directors. Most of those analysts argued there’s no more room to lower rates. 

Read More: Brazil Analysts Rebuff New Rate Cuts on Growing Inflation Risks

Campos Neto said that inflation expectations shifted due to factors including the global economic changes, concerns over domestic fiscal policy, doubts over who will become the next central bank head when his mandate ends and new uncertainty stemming from historic floods in Brazil’s south.

Inflation forecasts for the end of 2024 and 2025 rose to 3.86% and 3.75% from 3.8% and 3.74%, respectively, according to a weekly central bank economist survey published earlier Monday. Analysts also lifted their December 2026 estimates to 3.58% after they had remained steady at 3.5% for nearly a year.

“Everything is pointing to a pause” in rate cuts, said Silvia Matos, an economist at Fundacao Getulio Vargas. Policymakers should now stick to a hawkish tone to bring estimates of future price increases to their goal. “Otherwise they will send a message that worsening inflation estimates don’t matter,” Matos added. 

Analysts in the central bank survey still bet on another quarter-point drop in June, with the benchmark Selic falling to 10% at year’s end and 9% in 2025. Still, most now see a pause in July with policymakers resuming their monetary easing in December. 

Split Vote

Central bankers led by Campos Neto cut interest rates by quarter-point to 10.5% on May 8 in a split vote with all four board members tapped by President Luiz Inacio Lula da Silva backing a larger, half-point reduction. 

The bank’s communication since then hasn’t defused fears that the institution will become more tolerant toward inflation once Campos Neto’s term ends in December, former Governor Gustavo Loyola said in an interview this month. 

Read More: Brazil Central Bank Needs More Unity on Target, Ex-Governor Says

Campos Neto and Economic Policy Director Diogo Guillen have recently stressed their concerns regarding higher inflation expectations, saying they are bad news for the monetary authority. 

Top banks such as Wells Fargo and UBS now bet policymakers will pause their easing cycle next month. 

Last week, Finance Minister Fernando Haddad said the bank’s 3% inflation goal is “demanding” while noting that the government remains committed to it. 

(Re-casts story to incorporate Campos Neto’s new comments)

©2024 Bloomberg L.P.