Brazil has highest projected real interest rate in 2022 among main economies
RIO DE JANEIRO, BRAZIL – The Brazilian real interest rate projected for the end of 2022 is currently around 6.5%, if inflation and SELIC rate forecasts are maintained.
Brazil leads the real interest projection when compared to 37 other nations, according to a survey conducted by Necton Investimentos.
Based on these figures, the Brazilian real interest rate is higher than forecasts for countries like Argentina and Turkey, where nominal interest rates are very high, above 20% and 50%, respectively, but the real interest rate will be negative due to high inflation.
The IPCA (Extended National Consumer Price Index) used in the survey shows an increase of 5.23% for the year. As for the SELIC, until this week, the median forecast in the Focus report indicated that Brazil would end 2022 with a basic interest rate of 11.75%. The real interest rate is determined by subtracting these two components.
“The value [of the Brazilian real interest rate] is virtually double the rate projected for second position, which is Russia, expected to have an interest rate of 8.1%, against an inflation rate of 4.8%, resulting in a real rate of 3.3%,” wrote Necton chief economist André Perfeito in a note to clients.
Overall, in developed countries, inflation and interest rates at lower levels are observed, thus reducing the real interest rate.
A 1.5 percentage point increase in the SELIC is expected for the Central Bank’s Monetary Policy Committee (COPOM) meeting, which starts this Wednesday, February 2. Thus, the interest rate would reach 11.75% as early as this week, up from the current 9.25%.
WHAT DOES REAL INTEREST MEAN?
The real interest rate is a measure closely monitored by investors, because it shows how much an investment in fixed income would yield above the inflation rate in a given country.
A real interest rate above 6% would be a reversal in relation to the current situation. Based on inflation and interest rates in Brazil today, the SELIC-based yield still loses out to inflation: the accumulated 12-month IPCA was 10.06% in 2021, against 9.25% for the SELIC rate.
A higher real interest rate can thus lead to an appreciation of the Brazilian real against the dollar, through the attraction of foreign investments. Necton revised its dollar projection for 2022 from R$5.40 to R$5.20 this week.
In addition, the wider difference between SELIC and IPCA also indicates that there has been some results in controlling inflation through interest rates, Perfeito says.
“The rising real interest rates show […] a trend towards inflationary control and thus we have a more benign perspective for the country in terms of investment destinations,” Necton’s note points out.
However, for borrowers, having high real interest rates is bad news, because it increases the cost of debt. For domestic companies, it may be more beneficial to hold cash rather than take out credit to finance productive investments and expanding activities.
Thus, the increases in interest rates, added to last year’s record inflation, unemployment and weak economic activity, lead to an outlook of a stagnant Brazilian economy this year, growing around 0.3%. Brazil had one of the worst growth projections in the world in the last International Monetary Fund report.
There is still no guarantee that inflation will close 2022 at the forecast level, despite the interest rate hikes. The latest projections for the IPCA have been rising beyond the 5% initially forecast and above the Central Bank’s target. Last year the IPCA closed the year at 10.06%, the highest since 2015 and one of the worst rates since the Real Plan.
In this scenario, the SELIC rate could also rise beyond 11.75%, depending on how inflation plays out throughout the rest of the year. With the IPCA forecast for January coming in higher than expected, analysts and banks have increased their projections for the SELIC. Some are forecasting that the rate will close above 12%, that is, with even more hikes promoted by the COPOM in the coming meetings.
More: Brazil news in English, every day from The Rio Times.
Live Market IntelligenceBrazil — Live Market Board
Rio Times · Live Market Intelligence
Brazil — Live Market Board
+0.66%
172,457.76
+0.66%
71,204.98
-0.84%
10,660.26
+0.33%
2,848,945
—
2,452.46
-0.02%
| Instrument | Last | Change | YoY | Prev. | High | Low | Volume |
|---|---|---|---|---|---|---|---|
| IBOV | 172,457.76 | +0.66% | +9.73% | 171,324.31 | — | — | — |
| USD/BRL | 5.67 | +0.45% | +7.09% | 5.64 | 5.67 | 5.63 | — |
| SELIC | 13.75% | — | — | — | — | — | |
| PETR4 | 45.30 | +0.00% | +39.43% | 45.30 | 45.30 | — | — |
| VALE3 | 63.50 | +0.00% | -3.30% | 63.50 | 63.50 | — | — |
| ITUB4 | 42.27 | +0.00% | +7.66% | 42.27 | 42.27 | — | — |
| BBDC4 | 14.52 | +0.00% | -25.46% | 14.52 | 14.52 | — | — |
| BBAS3 | 15.10 | +0.00% | -32.89% | 15.10 | 15.10 | — | — |
| B3SA3 | 14.89 | +0.88% | +2.90% | 14.76 | 14.94 | 14.53 | 34,792,900 |
| ABEV3 | 15.79 | +0.00% | +15.85% | 15.79 | 15.79 | — | — |
| WEGE3 | 51.31 | -0.66% | +14.48% | 51.65 | 52.05 | 50.93 | 7,741,000 |
| PRIO3 | 63.30 | +0.00% | +58.93% | 63.30 | 63.30 | — | — |
| SUZB3 | 54.77 | +0.00% | +14.92% | 54.77 | 54.77 | — | — |
| RENT3 | 30.07 | +0.00% | -28.47% | 30.07 | 30.07 | — | — |
| AZZA3 | 15.91 | +0.00% | -45.85% | 15.91 | 15.91 | — | — |
| CSNA3 | 3.72 | +0.00% | -56.79% | 3.72 | 3.72 | — | — |
| GGBR4 | 24.73 | +0.00% | +30.78% | 24.73 | 24.73 | — | — |
| ENEV3 | 26.81 | +0.00% | +38.98% | 26.81 | 26.81 | — | — |
This article was produced by The Rio Times’ automated AI newsroom. Editorial responsibility: Matthias Camenzind, Publisher and Editor-in-Chief. The Rio Times also runs Ask Rio Times, which answers from 100,000+ of our own articles, the daily Latin America Power Map, and prediction-market odds on elections and markets.. How we use AI · Report an error
Brazil runoff, Sunday, October 25: Brazil runoff date. Latest: Brazil runoff polls, Flávio 51%, Lula 49%.