With the recent drop in prices of commodities favoring global disinflation, XP (BVMF:XPBR31) cut projections for the consumer price indicator in Brazil this year and expects interest rates to reach a neutral level sooner than expected, as pointed out in its monthly macro report.
XP cut the estimate from 4.1% to 3.7% for the IPCA (Broad Consumer Price Index) this year. “Since mid-October, the prices of industrial commodities have fallen by around 4% (in dollars), while agricultural commodities have fallen by 15%, mainly due to the decline in sugar prices. Part of this drop should be passed on to consumers, helping to reduce inflation in the first half of 2024”, says XP.
Furthermore, domestic factors also help with disinflation, including “solid and resilient conduct of monetary policy by the Central Bank of Brazil, progress in tax revenue measures in recent weeks”, said XP. Therefore, the expectation is that Selic will reach 9% this year, compared to a previous estimate of 10%.
According to XP, the situation of public accounts is the main risk for the prospects of monetary policy. “We estimate the public sector primary deficit at 2.3% of GDP in 2023. The approval of measures to increase revenues should reduce the deficit to 0.6% of GDP in 2024, a level still far from the zero target established in the budget guidelines”, he concludes.
Furthermore, XP expects the exchange rate to appreciate to R$4.70 per dollar at the end of 2024, given a strong trade surplus and a downward trend in the American interest rate, but shows concern about the low dynamism of economic activity. The projection for GDP (Gross Domestic Product) remains at 1.5%
With information from Investing.com
#cuts #inflation #interest #projections #year
