(Bloomberg) -- Brazil’s central bank raised its 2023 economic growth forecast while warning of a looming drop-off in activity next year as monetary policy remains tight. 

The bank forecasts gross domestic product will expand 2.9% this year, more than the 2% growth estimate from June, according to its quarterly inflation report published on Thursday. It sees activity growing 1.8% next year. 

By comparison, analysts surveyed by the monetary authority have raised their GDP estimates to 2.92% for 2023 and 1.5% in 2024.

Policymakers led by Roberto Campos Neto wrote that better-than-expected growth seen so far this year should be temporary, as restrictive interest rates take hold on activity in coming quarters. “The strong growth in the first half of the year partly reflects transitory factors,” they wrote, adding that there are prospects “of activity growing at a slower pace in the coming quarters and throughout 2024.”

Latin America’s largest economy has remained resilient to high rates, boosted this year by a strong labor market, robust services and a bumper harvest. Central bankers kicked off an easing cycle in August after consumer price growth came off a peak, joining countries such as Chile and Uruguay. Still, policymakers have remained cautious as inflation forecasts run above target.

Brazil central bankers delivered their second straight half-point rate cut last week, lowering borrowing costs to 12.75% while saying there are slim chances of more aggressive reductions. Closely-watched services prices are easing, but headline inflation accelerated again in mid-September. 

The bar to accelerating the pace of rate cuts is “perhaps slightly higher” than before given factors including the evolution of the global economy, Campos Neto told reporters at a press conference later on Thursday. At the same time, it’s too early to talk about smaller reductions, he said.

Read More: Above-Goal Inflation Crushes Brazil Hopes for Bigger Rate Cuts

Central bankers debated Brazil’s economic resilience at this month’s policy meeting, noting a boost from welfare programs and a strong job market, minutes to the gathering show. Still, they said it was “premature” to jump to conclusions about higher potential growth rates.

--With assistance from Bruna Lessa.

(Adds comments from Campos Neto in seventh paragraph)

©2023 Bloomberg L.P.