Central Bank Says Economy Should Grow Slightly in 2019 Third Quarter

RIO DE JANEIRO, BRAZIL – After the economy expanded more than expected in the second quarter, the Central Bank‘s Monetary Policy Committee (COPOM) expects it to show slight growth in the third quarter. This is COPOM’s finding in the minutes of its last meeting, released September 24th.

“The next quarters should show some acceleration, which should be reinforced by the incentives resulting from the release of funds by the FGTS (Severance Premium Reserve Fund) and the PIS-PASEP (Social Integration Program/Civil Servants Asset Development Program) – with impact, in particular, in the last quarter of 2019,” said the committee.

By excluding the effects of these temporary incentives, COPOM believes that economic growth will be gradual.

Last Wednesday, September 18th, COPOM decided to reduce the Selic once again by 0.5 percentage points to 5.5 percent per year.

In the document released yesterday, COPOM points out that the “consolidation of the favorable scenario for prospective inflation should allow for additional adjustment” in the Selic rate. However, the committee pointed out that the next steps in defining the Selic rate “will remain contingent on the evolution of business activity, risk balance and inflation projections and expectations”.

According to the committee, the short-term projections for the financial market suggest that accumulated inflation in 12 months should decline in the coming months and, by the end of the year, should revert to levels close to those observed up to August.

“This short-term trajectory reflects, among other factors, the favorable behavior of some of the more variable inflation components and the dynamics of imported inflation, which has been moderated by the trajectory of external prices”.

The forecast for inflation in 2020 is below the four percent target.

Against a backdrop of interest rate trajectories of five percent per annum at the end of 2019 and an exchange rate of R$3.90, and maintenance of these levels in 2020, inflation should remain at 3.3 percent in 2019 and 3.6 percent in the following year.

In the minutes, COPOM reiterated “the need to continue the reform agenda and to pursue the necessary adjustments in the Brazilian economy”.

“They have also considered that, although the external environment has remained relatively favorable to conducting monetary policy in emerging economies, the potential risk of adverse scenarios for risky assets seems to have intensified,” he added.

Source: Agência Brasil