By Marcela Ayres
BRASILIA, Sept 24 (Reuters) - Brazil's central bank on Thursday projected inflation close to its 3% target at the policy horizon relevant for its next interest-rate decision, reinforcing expectations for further easing this year after last week's fifth consecutive rate cut.
In its quarterly monetary policy report, the bank forecast annual inflation at 3.1% in the second quarter of 2028, the key horizon for its November meeting, and at the same level through the first quarter of 2029.
The projections are likely to bolster market bets that the bank will deliver an additional rate cut this year, after it reduced its benchmark Selic rate by 25 basis points to 13.75% last week while keeping its next steps open.
The monetary authority also lowered its forecast for 2026 economic growth to 1.8% from 2.0%, while for the first time projecting gross domestic product (GDP) growth of 1.4% in 2027.
The estimates are significantly more cautious than forecasts released by President Luiz Inacio Lula da Silva's government, which on Tuesday projected GDP growth of 2.0% in 2026 and 2.3% in 2027.
Policymakers said the downward revision for this year reflected both early indicators from the third quarter pointing to weaker-than-expected activity and a less favorable composition of growth in the second quarter.
The central bank noted that upside surprises in GDP between April and June were concentrated in sectors less sensitive to the economic cycle, particularly agriculture and extractive industries, while more cyclical supply sectors and household consumption undershot expectations.
For 2027, the bank's outlook assumes that monetary policy will remain restrictive, with spare capacity limited and the external environment highly uncertain.
It also factors in a fading impulse from fiscal and credit stimulus, alongside a more limited contribution from agriculture and extractive industries to economic growth.
(Reporting by Marcela Ayres; Editing by Gabriel Araujo)
