Credit Suisse sees Brazil’s Selic at 9.75%, reduces projection for 2022 GDP from 1.5% to 1.1%

RIO DE JANEIRO, BRAZIL – At a time when inflation continues to surprise upward, and the scenario is more challenging, Credit Suisse raised its estimate for the IPCA this year from 8.1% to 8.5% and now expects inflation to end 2022 at 5.2%, no longer at 5.0%, due to the effect of high inflationary inertia on wages and services.

With this context in hand, the Swiss bank kept unchanged the expectation for the Selic at 8.25% at the end of this year, but began to see a longer cycle, with the introductory interest rate at 9.75% at the end of the process.

“Surprises in inflation will probably lead the Central Bank to extend the monetary tightening cycle until 2022, but not to accelerate it,” point out economists Solange Srour and Lucas Vilela.

In a report sent to clients, they note that the president of the Central Bank, Roberto Campos Neto, signaled that he would not accelerate the pace of interest rate adjustment in next week’s Copom meeting.

“We maintain our assessment that acceleration is not optimal, given the already high tightening rate (100 basis points is the highest rate observed since 2003) and the high level of uncertainty about the effects and timing of monetary policy on economic activity and inflation,” say Srour and Vilela.

They, however, believe that the monetary authority will need to raise interest rates even more as the inflation scenario worsens. For this reason, Credit Suisse now expects four one-point increases in the Selic rate and a final increase of 0.50 points.

Regarding economic activity, economists at the Swiss bank maintained the projection of GDP growth at 5.3% this year but reduced the estimate for 2022 GDP from 1.5% to 1.1%.

“Short-term indicators show maintenance of the economic recovery due to continued normalization on the supply side of the economy. However, the forward-looking scenario for economic growth in 2022 has become more challenging due to lower purchasing power caused by rising inflation and tightening financial conditions,” they say.

In Srour and Vilela’s view, the risks remain skewed to the negative side, given the worsening of the water crisis, in addition to the possibility of energy shortages. “We calculate that a mandatory 10% cut in electricity consumption would reduce GDP growth by 1.6 percentage points,” the economists point out.