Focus: analysts project 1st interest rate cut in August – 06/19/2023 – Market

Analysts consulted by the Central Bank improved the prospects for inflation and economic growth and saw the first cut in the basic interest rate in August, with the Selic lower both at the end of 2023 and in 2024, according to the Focus survey released this Monday (19).

The revisions in the survey, which captures the market’s perception of economic indicators, come in the wake of better data released recently, and on the eve of the first day of the Copom (Monetary Policy Committee) meeting.

Experts continue to see that the Copom will keep the Selic at the current level of 13.75% when announcing its monetary policy decision on Wednesday (19). However, now they see that the first cut will take place in August, of 0.25 percentage points, against the previous maintenance forecast.

In addition, the basic rate was estimated at 12.25% at the end of this year, from 12.50% before.

For 2024, the projection for the Selic has now increased to 9.50%, from 10.00% before, while for 2025 and 2026 they remain at 9.0% and 8.75%, respectively.

After Brazilian consumer inflation decelerated in May with more force than expected, taking the IPCA in 12 months to 3.94%, the weakest level since October 2020, Focus showed a strong reduction in expectations for inflation.

The increase in the IPCA this year is now estimated at 5.12%, from 5.42% before, while, for next year, the account was reduced by 0.04 percentage points, to 4.0%. For the following two years there was a reduction of 3.80%, 3.90% and 3.88%, respectively, in the previous survey.

The center of the official target for inflation in 2023 is 3.25% and for 2024 and 2025 it is 3.00%, always with a tolerance margin of 1.5 percentage points, more or less. The CMN (National Monetary Council) has a meeting scheduled for next week, in which it should establish the inflation target for 2026, and the market has been speculating about the possibility of determining that the Central Bank follows the inflation target without a determined deadline.

For the GDP (Gross Domestic Product), there was also an improvement in the Focus estimate for this year, after the IBC-Br (BC Economic Activity Index) pointed out that the economy grew more than expected in April. The outlook for economic growth in 2023 jumped to 2.14% from 1.84% before.

However, the survey with a hundred economists shows that for 2024 the GDP expansion is now estimated at 1.20%, from 1.27% before.