Brazil’s Central Bank will take longer to cut its benchmark interest rate from its current level (13.75%) and inflation expectations will deteriorate further during the first years of Luiz Inácio Lula da Silva‘s government, according to a weekly survey of economists by the country’s central bank.
Specifically, analysts now expect the Selic rate to rise to 12.25% in December, in contrast to the 12% previous estimate. In addition, the first survey published under the new Lula da Silva government saw a series of upward revisions to inflation estimates.
Consumer prices are now expected to rise 5.31% this year, 3.65% in 2024 and 3.25% in 2025, all above the bank’s target.
Those responsible for monetary policy, headed by Roberto Campos Neto, are “closely” watching reforms that may affect Brazil’s fiscal prospects. They have warned against an expansion of subsidized credit and a rollback of labor reform, saying both measures could “reduce” the power of their tightening cycle.
After adding 11.75 percentage points to borrowing costs, central bankers have now held rates steady at 13.75%, their highest level in six years.
Lula da Silva took office on Sunday promising economic inclusion and prosperity driven by state-owned companies and public banks. This year he is expected to launch a R$169 billion (US$32.1 billion) spending plan that is likely to fuel inflation with more aid for the poor and increases in the minimum wage. Fuel tax breaks, which helped drive down prices last year, will be extended for 60 days.
Finance minister Fernando Haddad declared in an interview with the local newspaper O Globo that a new fiscal rule could be discussed in April to replace the old spending limit law. He also promised to “harmonize” monetary and fiscal policies, in a speech that investors interpreted as more fiscally responsible.
With information from Bloomberg