Brazil: Economists Predict Aggressive Interest Rate Hike for December Meeting
Economists expect Brazil’s Central Bank to implement a notable interest rate increase of 0.75 percentage points during its upcoming meeting on December 10 and 11.
Out of 117 institutions surveyed, 89 predict this hike, raising the Selic rate to 12% by the end of 2024. A smaller group of 24 institutions anticipates a more aggressive increase of 1 percentage point, pushing the Selic to 12.25%.
This sentiment reflects the necessity for decisive action to address rising inflation expectations. Market reactions show a divergence in predictions.
As of last Friday, digital options pricing indicated a 31% chance of a 0.75-point increase. In comparison, there was a 55% likelihood of a full point hike.
Felipe Sichel, chief economist at Porto Asset, argues that stronger tightening is essential for the Central Bank to stay ahead of market pricing. He believes this approach will positively influence inflation expectations toward the 3% per year target.
Sichel identifies three critical factors influencing the Central Bank‘s strategy: external conditions, fiscal policy, and economic cycles.
He believes that recent developments justify a more aggressive approach. His projections suggest that the Selic could reach as high as 14.25% by the end of this tightening cycle.
Economic Growth and Monetary Policy
Roberto Padovani, chief economist at BV bank, emphasizes that robust economic growth adds pressure on monetary policy. He notes that service inflation remains resilient due to a tight labor market and highlights the impact of currency depreciation on inflation dynamics.
Padovani connects these issues to an expansionary fiscal policy that has not generated quick surpluses, leading to increased investor insecurity.
Currently, BV bank forecasts a Selic rate of 13.50%, expecting increases of 0.75 points in December and January, followed by smaller hikes in subsequent months. Padovani expresses concern over fiscal dominance affecting monetary policy effectiveness.
Despite differing opinions on the scale of potential interest rate increases, economists agree that the Central Bank should refrain from providing explicit guidance on future actions.
In short, they recognize that adjustments will depend heavily on forthcoming fiscal developments and their implications for inflation expectations.
More: Brazil news in English, every day from The Rio Times.
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error · Editorial responsibility: Matthias Camenzind, Editor-in-Chief
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