Brazil analysts cut their interest rate forecasts for this year and next after central bankers launched a monetary easing cycle with a bold half-a-percentage point cut last week.
(Bloomberg) — Brazil analysts cut their interest rate forecasts for this year and next after central bankers launched a monetary easing cycle with a bold half-a-percentage point cut last week.
The benchmark Selic will fall to 11.75% by December, down from the prior estimate of 12%, according to a weekly central bank survey of economists published Monday. Analysts cut their key rate forecast for next year to 9%.
Consumer price estimates for this year were left unchanged at 4.84%. Annual inflation will slow down to 3.88% in 2024 and 3.5% in 2025. The monetary authority targets inflation at 3.25% for this year and then 3% through 2026.
Central bankers led by Roberto Campos Neto kicked off an easing cycle with a bigger-than-expected rate cut to 13.25% in a split vote last week. Policymakers also signaled they intend to carry on with reductions of 50 basis points after annual inflation eased below their target and core price measures, which exclude volatile items like energy and food, also improved.
Read more: Brazil Signals More Half-Point Rate Cuts Ahead in Dovish Shift
“Policymakers’ forward guidance seems consistent with a moderate pace, but lower inflation may prompt more aggressive” cuts ahead, JPMorgan & Chase Co. analysts led by Cassiana Fernandez wrote in a research note on Monday. With price pressures easing in Latin America, “so far central banks have been bolder than anticipated.”
President Luiz Inacio Lula da Silva’s government welcomed the rate cut, with Finance Minister Fernando Haddad calling it “encouraging” and saying it leads to an “optimistic view” of the economy. It was the first policy decision for new board member Gabriel Galipolo, who is a Lula ally and seen by many within the Workers’ Party as Campos Neto’s successor after his term ends in 2024.
Brazil’s real slumped the most since November after the borrowing cost reduction as carry trade appeal faded. Swap rates fell as traders boosted bets that policymakers may accelerate the pace of easing.
Meanwhile, Congress has resumed debate on key proposals seen by the government as prompting more rate cuts ahead. A tax reform is now being discussed in the Senate after passing an initial vote in the lower house, while legislators also move ahead with a proposal to shore up public finances.
Regionally, Chile cut rates by 100 basis points last month, while Mexico and Peru are expected to start easing later this year. On the other hand, central bankers in developed nations including the Federal Reserve, the European Central bank and the Bank of England have continued to tighten policy.
Read More: Fed Loses to Hyperinflation-Scarred Brazil in Race to Cut Rates
(Updates with economist comment in fifth paragraph)
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