Santander Brasil raises inflation and interest forecasts until 2025 – 02/09/2023 – Market

Santander Brasil revised upwards this Thursday (9) its projections for inflation and interest rate levels until 2025, drawing attention to uncertainties related to the approval of macroeconomic reforms and risks to the stabilization of the public debt.

The IPCA should end 2023 with an increase of 5.9%, estimates Santander, against 5.4% estimated before. For next year, the inflation forecast rose to 3.7%, compared to 3.5%.

“The review [de 2023] was based on an increase in expected inflation of administered prices, due to base effects generated by the fact that we did not change our projection of [preço do] oil by the end of 2023,” said Ana Paula Vescovi, Santander’s chief economist and columnist for Sheet, and team. For 2024, the revision reflected inertial effects from higher inflation in 2023.

As for 2025, the bank raised its inflation forecast by 1 full percentage point, to 4.0%.

“The change reflects uncertainties related to the approval of structural reforms and their effects on inflation expectations, in a context of tight output gap”, evaluated Vescovi and team in the document, although they noted that “such a condition may improve in case of well-approved approval”. successful implementation of an effective tax framework and tax reform”.

With expectations of higher inflation, Santander now sees the Selic rate at 13% at the end of 2023, against 12% forecast in the previous scenario. The rate is currently at 13.75%.

“We are changing our projections for the interest rate, anticipating the beginning of a cycle of cuts from November [antes: agosto]”, said Vescovi and team, noting “greater concern [do BC] with inflationary risks”.

On the fiscal front, Vescovi and team stated that, “in the long term, we continue to see a risky path towards debt stabilization, in a context of high pressure for social spending and resistance to tax increases”.

Santander expects gross debt to end this year at 78.8% of GDP, but grow to 83.4% and 86.7%, respectively, in 2024 and 2025.