(Bloomberg) — Brazil analysts lowered their 2023 interest rate forecasts for the first time in a year and a half as President Luiz Inacio Lula da Silva puts the finishing touches on a proposal aimed to control the growth of public debt.
(Bloomberg) — Brazil analysts lowered their 2023 interest rate forecasts for the first time in a year and a half as President Luiz Inacio Lula da Silva puts the finishing touches on a proposal aimed to control the growth of public debt.
The benchmark Selic will fall to 12.5% this December, down from the prior estimate of 12.75%, according to a central bank survey of economists published Monday. It was the first reduction for 2023 since October, 2021. Estimates for borrowing costs at the end of next year remained unchanged at 10%.
Analysts now see an easing cycle beginning in September with a quarter-point reduction, followed by cuts of 50 basis points in each of the two subsequent policy meetings, according to the central bank.
Policymakers led by Roberto Campos Neto have held rates steady at 13.75% since September, with no signs that they are discussing easing. Annual inflation slowed for the ninth consecutive month to 4.65% in March, but core measures stripping out volatile items like food and energy are running fast.
Read More: Brazil Central Bank Welcomes Slowing Inflation But Won’t Act Yet
Finance Minister Fernando Haddad is commanding the design of a new public spending framework that has initially been welcomed by investors. The plan sets targets for budget surpluses before interest payments and is expected to be delivered to Congress later today.
Campos Neto publicly praised the government’s plan, calling it “super positive,” as it ensures a controlled trajectory for the country’s debt. Still, he warned there’s no “mechanical relationship” with rate cuts.
At the same time, top analysts have questioned the plan’s estimates for revenue growth in a context of sluggish activity, falling commodity prices and high borrowing costs.
In a separate release, domestic activity contracted 0.04% in January from the month prior, according to a central bank’s proxy for gross domestic product published on Monday. From a year ago, the index rose 3.03%.
Analysts surveyed by the central bank forecast that inflation will accelerate to 6.01% this year and then ease to 4.18% in 2024. Economists see consumer price increases above the central bank’s targets through 2025.
–With assistance from Adriana Dupita (Economist), Veronica Vilarinho and Giovanna Serafim.
(Updates with details from the survey in the third paragraph, data on economic activity in eighth paragraph)
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