Focus shows Selic cut in August and lower inflation – 06/26/2023 – Market

Economists continued to reduce their projections for Brazilian inflation this year and next, showed the weekly Focus bulletin, and maintained their expectation that the BC (Central Bank) will start cutting interest rates as early as August, despite the autarchy not having signaled this possibility in its latest monetary policy statement.

Now, the expectations compiled by the survey, released by BC, point to an increase of 5.06% for the IPCA in 2023, compared to a rate of 5.12% estimated before, in the sixth week followed by decline. For 2024, the account fell for the fourth consecutive bulletin, to 3.98%, from 4.00% before.

The inflation forecast for 2025 was maintained at 3.80%, while that for 2026 fell for the third consecutive week, to 3.72%, against 3.80% 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 this week, in which it should establish the inflation target for 2026, and the market has been speculating about the possibility of the collegiate determining that the BC follow the inflation target without a determined deadline.

For the Selic, Focus maintained projections that the rate will end this year at 12.25%, with the beginning of an interest rate cut cycle already in August, at a pace of 0.25 percentage points, even after the Central Bank signaled an intention to ease monetary policy any time soon at its policy meeting last week. At the time, the autarchy left the Selic unchanged at 13.75%.

Investors should pay attention on Tuesday to the minutes of the last Copom (Monetary Policy Committee) meeting, in search of clarifications on the possible start of interest rate cuts.

The most recent Focus also kept intact the projection for the Selic at the end of 2024, currently at 9.50%.

For GDP (Gross Domestic Product), there was a seventh improvement in a row in the Focus estimate for this year. The outlook for economic growth in 2023 is now 2.18%, up from 2.14% before.

For 2024, GDP expansion is now estimated at 1.22%, from 1.20% before.