Brazil economists foresee deeper monetary easing, lower inflation

BRASILIA/SAO PAULO (Reuters) – Private economists in Brazil anticipate deeper monetary easing this year and improved inflation prospects until 2026 following the government’s decision to maintain the country’s inflation goal at 3%, a weekly central bank poll showed on Monday.

President Luiz Inacio Lula da Silva has consistently blasted the country’s central bank for keeping interest rates at a cycle-high of 13.75% even as inflation slows.

During the first months of his administration, he also criticized inflation targets as too low, arguing that they led to an overly restrictive monetary policy.

Such remarks contributed to the deviation of long-term inflation expectations from official targets, viewed as concerning by the central bank, which described the development as a rationale for maintaining interest rates at their highest in six years.

However, the National Monetary Council (CMN), Brazil’s top economic policy body, set the 2026 inflation target at 3% last week, maintaining the same goal for 2025 and 2024.

The decision has prompted a change in the outlook of private economists surveyed by the central bank, who now anticipate that Brazil’s benchmark interest rate will end 2023 at 12%, down from the previous estimate of 12.25%.

The first interest rate cut of 25 basis points in August, which was already expected, is predicted to be followed by three consecutive cuts of 50 basis points by the end of the year.

The survey also revealed improved inflation expectations for this year at 4.98%, compared with the 3.25% official target. Expectations for 2024 (3.92%), 2025 (3.60%), and 2026 (3.50%) have also declined.

At the start of trading on Monday, Brazil’s currency experienced a slight strengthening against the U.S. dollar, while the benchmark stock index rose around 0.9%.

The following are a set of projections from the survey:

Market estimates 2023 2023 2024 2024

Median Now Previous Now Previous

week week

IPCA inflation index 4.98 5.06 3.92 3.98

(%)

GDP growth (%) 2.19 2.18 1.28 1.22

Brazilian real/U.S. 5.00 5.00 5.08 5.10

dollar (year-end)

Interest rate Selic 12.00 12.25 9.50 9.50

(year-end)

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