Brazil analysts kept their inflation forecasts for next year and beyond unchanged after President Luiz Inacio Lula da Silva’s government presented a highly-anticipated fiscal rule proposal to help control the growth of public debt.
(Bloomberg) — Brazil analysts kept their inflation forecasts for next year and beyond unchanged after President Luiz Inacio Lula da Silva’s government presented a highly-anticipated fiscal rule proposal to help control the growth of public debt.
Expectations for consumer price increases remained steady from the previous week, at 4.13% for 2024 and 4% for 2025, interrupting a string of increases, according to a central bank survey of economists published Monday. The annual inflation rate will tick up to 5.96% this December, slightly higher than prior estimate of 5.93%, the analysts forecast.
Policymakers led by Roberto Campos Neto held interest rates unchanged at 13.75% last month for the fifth straight meeting as they battle expectations that consumer prices will keep rising at an above-target pace through 2025. Inflation slowed down for the 10th consecutive month to 5.36% in early March.
Read More: Brazil’s New Fiscal Plan Is Cautiously Welcomed by Markets
Last week, Finance Minister Fernando Haddad presented a new fiscal framework that was initially welcomed by investors. The plan sets targets for surpluses before interest payments and now needs to be debated in Congress. Haddad’s team expects the new rule to help central bankers lower interest rates — which have become a sensitive topic since Lula started criticizing the central bank’s tight monetary policy.
Lula’s complaints have resonated with the population. Only 17% of Brazilians say interest rates are “adequate,” while 71% consider them “higher than they should be” and 80% think Lula is right to put pressure on the monetary authority, according to a Datafolha survey published on late on Sunday.
Slowly Going Down
Analysts surveyed by the central bank forecast that the key interest rate will fall to 12.75% by December and 10% by the end of next year. It’s still unclear how much space for rate cuts the new fiscal framework may give policymakers. Last week, Campos Neto said he needs time to study the plan, though pointed to “goodwill” from the finance ministry to tame growing debt levels.
JPMorgan & Chase Co. said the plan is not enough to guarantee rate cuts before November.
“While the predictability of the fiscal framework is welcome, the rule does not seem to be enough to stabilize debt-to-GDP,” economist Cassiana Fernandez wrote in a report. “Moreover, there is still no clarity on what will be announced regarding revenues in the coming weeks, which directly impacts the government’s plans to reach the primary budget target.”
(Updates with economist’s comments in final paragraph)
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