Brazil Central Bank Seen Cutting Rates Further in 2024

Following a continuation of lower yields and global inflation estimates Bloomberg reported Brazil analysts lowered their 2024 benchmark interest rate projections further. According to a weekly central bank economist survey published Tuesday the Selic will fall to 9% by December 2024, down from the prior estimate of 9.25%. Borrowing costs will fall to 8.5% by the end of 2025, the release showed. Banco Central do Brasil​ cut the Selic rate 50bps to 11.75% at its December meeting. It was the fourth half a percentage point cut in a row and signaled it will keep the same pace of monetary easing at least through 2024.

Brazil Real
Brazilian Real

The central bank has now cut the Selic by two percentage points since August. Still, estimates for medium-term inflation remain above the bank’s 3% goal for 2024, with analysts seeing price increases at 3.91% next year. Board members also trimmed their 2024 economic growth forecasts as strong consumption wanes.

In their quarterly inflation report released Dec. 21, policymakers led by Roberto Campos Neto trimmed their 2024 economic growth forecast to 1.7% from 1.8%. Within they forecast a moderation in agriculture and consumption. They report family income will take a hit as the twin boost of lower food prices and higher government spending loses force.

Brazil’s economic growth during the first half of the year was, boosted by a strong harvest, demand for services and a firm labor market. Analysts have continued to raise estimates for 2023, with activity now seen expanding near the 3.2% forecast by the government.

Prior to these rate cuts The Central Bank last year aggressively hiked its benchmark interest rate with twelve consecutive interest rate hikes since 2021 when the bank began its current tightening cycle early last year, the Selic was at a record low 2%. The lending rate is now at its highest level since 2017.

Brazil Interest Rate
Brazil Interest Rates

Policymakers face uncertainty on the government’s fiscal plans. With Congress nearing recess, Finance Minister Fernando Haddad is working against the clock with legislators to approve bills. Brazilian Congress is debating a tax reform as well as bills aimed at increasing public revenues as the administration pledges to eliminate next year the primary budget deficit, which doesn’t take into account interest payments.

“Given the importance of the execution of the fiscal targets already established for the anchoring of inflation expectations, and hence for the conduct of monetary policy, the Committee reinforces the importance of firmly pursuing those targets,” central bankers wrote in the statement.

After peaking at more than 12% in 2022, Brazil’s annual inflation now stands at 4.68% in November. Policymakers target price growth Inflation expectations for 2023, 2024, and 2025 collected by the Focus survey are around 4.5%, 3.9%, and 3.5%, respectively. Copom’s inflation projections in the reference scenario* stand at 4.6% for 2023, 3.5% for 2024, and 3.2% for 2025. Inflation projections for administered prices are 9.1% for 2023, 4.5% for 2024, and 3.6% for 2025.

Brazil’s economic growth during the first half of the year was, boosted by a strong harvest, demand for services and a firm labor market. Analysts have continued to raise estimates for 2023, with activity now seen expanding near the 3.2% forecast by the government.


Source: Banco Central Do Brasil, Bloomberg

From The TradersCommunity News Desk