Major banks like JPMorgan & Chase Co, Santander and Itau now project that Brazil’s central bank will deliver its first interest rate cut in September, two months earlier than they previously forecast.
(Bloomberg) — Major banks like JPMorgan & Chase Co, Santander and Itau now project that Brazil’s central bank will deliver its first interest rate cut in September, two months earlier than they previously forecast.
JPMorgan joined bets for an earlier beginning to Brazil’s easing cycle on the heels of improvements in current and expected inflation, according to a report. The bank sees the benchmark Selic rate falling from its current level of 13.75% to 12.25% by December, with an initial cut of 50 basis points coming in September.
“If there is a sharper drop in inflation expectations, BCB could opt for kicking off the easing cycle earlier, but at a slower pace,” analysts Cassiana Fernandez and Vinicius Moreira wrote in a note.
Itau lowered its inflation estimate for 2023 to 5.3% from 5.8% due to a decline in costs of tradeable goods and a drop in gasoline prices, according to an emailed report. The bank sees a cut of 25 basis points to the interest rate in September, saying that “receding inflationary pressures will allow” the bank’s monetary policy committee to “bring the easing cycle forward.”
Santander economists said in a research note that the central bank’s tightening policy, which has pushed the Selic to a six-year high, has begun to show initial effects on the economy and inflation while improving “flight conditions” for monetary policy. The bank cut its year-end rate estimate to 12.50%, from 13% previously.
Increasing Pressure
Brazil’s central bank has come under renewed pressure from a broad range of top government officials and business leaders, and is facing calls to begin cutting rates at next week’s monetary policy committee meeting.
There’s “no reason” to justify borrowing costs at 13.75%, President Luiz Inacio Lula da Silva said during a local media interview on Thursday. “People are not buying anything,” and there’s no demand-driven inflation, he said.
While central bankers have faced government criticism for months, business leaders from different sectors of the economy are now growing vocal about tight monetary conditions.
Read More: Brazil Central Bank Criticism Broadens Before Key Rate Decision
Magazine Luiza SA’s Luiza Trajano called for an immediate rate cut bigger than 25 basis points during an event alongside central bank chief Roberto Campos Neto this week.
Jorge Goncalves Filho, president of the Institute for Development of Retailers, on Wednesday said there’s “great hardship” in the retail sector, and called for a “short-term reversal” on interest rates, as companies face challenges keeping up sales and accessing credit.
Annual consumer price increases eased to 3.94% in May, further within the central bank’s tolerance range, while core measures stripping out energy and food items slowed down. Campos Neto recently pointed to falling gauges of future inflation as creating “room” for rate cuts ahead.
Still, policymakers led by Campos Neto are expected to hold interest rates steady for the seventh straight time at the June 20-21 meeting, although they may provide an indication of when they plan to loosen the policy as inflation eases.
Lula’s nominees to fill two positions on Brazil’s central bank board won’t take office in time for next week’s interest rate decision, after lawmakers delayed required public hearings for deputy finance minister Gabriel Galipolo and career central bank employee Ailton Aquino until after the monetary policy committee’s June meeting.
Members of Lula’s Workers’ Party see Galipolo, who is expected to join the board by August, as an advocate for rate cuts.
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