SAO PAULO (Reuters) – Industrial production in Brazil surprised economists with a small increase in June, but the positive figures are unlikely to prevent the central bank from kicking off a monetary easing cycle later this week.
In Latin America’s largest economy, industrial output was up 0.1% in June from May, data from statistics agency IBGE showed on Tuesday, outpacing the 0.1% drop estimated by economists polled by Reuters.
The second month-on-month increase in a row was driven by final goods, IBGE said in a report, although noting Brazil’s industry remains in negative territory year-to-date, having dropped 0.3% in the period.
Industrial production in the country has been stuttering recently because of high borrowing costs, as Brazil’s benchmark interest rate stands at a six-year high of 13.75% since August 2022 in a bid to tame high inflation.
“Industry is struggling, rate cuts are needed,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said.
He expects a gradual improvement as the second half progresses thanks to better domestic conditions, but says some external risks stemming from countries such as the United States, China and Argentina remain high.
Brazil’s central bank is widely forecast to start cutting interest rates on Wednesday, when its monetary policy committee (Copom) concludes its August meeting.
Most economists anticipate a small 25-basis-point reduction, according to a Reuters poll, but some believe a 50-basis-point cut is more likely.
“The slightly better-than-expected increase in Brazilian industrial production in June indicates that the sector grew a little more quickly in Q2 than it did in Q1,” Capital Economics’ chief emerging markets economist William Jackson said.
“Even so, there’s nothing in the data that will stop Copom proceeding with its plan to start a monetary easing cycle tomorrow.”
Industrial production in June, IBGE added, grew 0.3% from a year earlier, in line with market expectations.
(Reporting by Gabriel Araujo and Camila Moreira; Editing by Steven Grattan)
