(Bloomberg) -- Brazil analysts lifted their estimates for the benchmark interest rate at the end of next year after the central bank said it won’t hesitate to tighten monetary policy due to a stronger-than-expected economy.

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The benchmark Selic will hit 10% in December, 2025, up from the prior forecast of 9.75%, according to a weekly central bank survey published on Monday. Analysts kept their end-2024 key rate estimates unchanged at 10.5%.

Policymakers led by Roberto Campos Neto have opened the door to rate hikes, marking a shift in guidance after pausing their easing cycle at 10.5% in June. The monetary authority’s inflation estimates remain above its 3% target as board members warn the outlook requires “even greater” caution.

Economic activity soared 1.4% on the month in June, above all estimates in a Bloomberg survey of analysts. Annual inflation accelerated more than forecast in July, hitting the top of the tolerance range on higher transportation and services costs.

Most analysts see inflation at 4.22% at the end of this year and 3.91% in December, 2025. In a 12-month horizon, consumer price increases should hit 3.73%, according to the survey published on Monday.

Central bankers are closely watching the Brazilian real, which gained around 3.5% in the last month on the back of a more hawkish stance from the board. Still, investors are questioning President Luiz Inacio Lula da Silva’s commitment to spending cuts, and some worry about the monetary authority’s tolerance for inflation once the leftist head of state names a new governor.

Central bank Monetary Policy Director Gabriel Galipolo, who is widely seen as the institution’s next chief, has moved to calm those fears in recent weeks. He has said the board will do “whatever it takes” to haul inflation to target.

While all options are on the table at the central bank’s September rate decision, the entire board is willing to hike borrowing costs if necessary to tame consumer price rises, Galipolo said at an event later on Monday.

Analysts at XP raised their end-2024 key rate forecast to 11.75% from 10.5% on the back of strong economic activity, according to a research report also published on Monday. They lifted their 2025 forecast to 12% from 10.5% before.

(Updates to add comments from central bank director in 8th paragraph)

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