Why Brazil’s Selic Might Not Go Far Below 10% Despite Hopes to The Contrary
(Analysis) Amid global and local fiscal pressures, Brazil may end its monetary easing, with the Selic rate potentially stabilizing at 10%.
These expectations stem from delayed rate cuts by the U.S. Federal Reserve and increased fiscal strain within Brazil due to changes in primary fiscal targets.
Key financial players like Citi, XP Investimentos, and JPMorgan see a double-digit Selic rate as a strong possibility.
A.C. Pastore & Associados recently raised their forecast from 9.25% to 10%, incorporating three quarter-point cuts starting at the next COPOM meeting in May.
Current market consensus aligns the rate at around 9.5%, based on Focus and Broadcast Projections surveys.
Economist Alexandre Schwartsman notes that strong growth, fiscal doubts, and a strong dollar limit further rate cuts.
He has increased his growth forecast from 1.8% to 2.3%, citing an economy outperforming its potential.
Recent U.S. inflation data has led to a reduced forecast, from six expected rate cuts to just one or two.
A surging dollar, now over 2% higher and solidifying above R$5, is fueling domestic inflation concerns.
Domestically, Brazil’s fiscal approach remains expansive, with public expenditures climbing.
Despite a vibrant job market and gradually decreasing inflation, expectations for significant rate cuts have waned.
Caio Megale of XP Investimentos advises caution due to rising commodity prices and falling emerging market currencies.
With the upcoming COPOM session, the Brazilian Central Bank may halve the pace of interest rate cuts due to rising domestic inflation and ongoing fiscal expansion.
Analyst Dalton Gardimam of Ágora Investimentos sees a potential two-digit Selic rate, revising his forecast from 9.5% to 9.75%.
The financial community remains vigilant, closely monitoring Brazil’s fiscal direction and its impact on monetary strategies.
More: Brazil news in English, every day from The Rio Times.
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