(Bloomberg) -- Brazil economists are delaying their estimates for the beginning of a cycle of interest rate cuts after the central bank voiced concern about rising inflation expectations in a hawkish policy statement.

Policymakers led by Roberto Campos Neto held the benchmark Selic rate at 13.75% on Wednesday, as inflation expectations keep “drifting away” from goals, set at 3.25% for 2023 and 3% for the next two years. The bank, they wrote, considers “that this scenario raises the cost of the disinflation that is needed to reach the targets.” 

Economists at UBS BB, a partnership between the Swiss firm and Banco do Brasil SA, now see rate cuts starting in September from a prior June estimate. Analysts at BNP Paribas SA also revised their forecast and now expect the easing cycle to begin in the second quarter of 2024. Swap rates, which indicate investors’ sentiment toward monetary policy, rose as much as 10 basis points during Thursday’s morning trading. 

“The strategy changed and it’s not just about consumer price increases, but lowering inflation expectations as well,” Alexandre de Azara, chief economist at UBS, said. 

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In their statement, central bankers wrote they will “persist” in the battle against above-target consumer price increases until they manage to also lower inflation expectations, “which have shown deterioration at longer horizons.” The Brazilian real strengthened above 5 per dollar for the fist time since June, as investors regained confidence on the central bank’s independence amid rising political tensions.    

President Luiz Inacio Lula da Silva got the green light to spend an additional 168 billion reais ($33.6 billion) this year, and has signaled a looser fiscal policy ahead. He recently criticized current inflation goals, suggesting a higher 4.5% target. Inflation estimates rose after his comments and economists now see consumer prices rising 3.5% in 2026, a year whose goal is expected to be debated in June. 

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Annual inflation has consistently eased in the past two months to 5.87% by mid-January. Still, core measures which strip out the most volatile items are accelerating.

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