Medium and long-term interest rates show slight increase under fiscal risk after PLOA

Without guidance from the US financial markets, which remained closed due to a holiday, the rates on Interbank Deposit (DI) contracts maintained their recent behavior, fluctuating around stability among short-term contracts and showing a slight increase in the medium and long-term vertices.

Contracts with closer maturities continue to reflect expectations of a strong upward movement in the Selic rate by the end of the year, while those with more distant maturities reflect investors’ fears regarding the trajectory of public accounts in the coming years and the effect this will have on interest rates.

On Friday, Planalto delivered the Annual Budget Bill (PLOA) for 2025 to Congress, and today detailed the proposal in a press conference, but was unable to alleviate investors’ concerns about fiscal balance.

The concern involves the view that the PLOA is underestimating costs, according to Beto Saadia, economist and partner at Nomos. “The spending cuts need to be more voluminous because there is already a forecast of lower revenue in 2025 than in 2024, due to the high interest rate,” he comments.

Federal Budget Secretary Clayton Montes reiterated that the zero primary deficit target set out in the PLOA could be met with a margin of R$3.7 billion (0.03% of GDP). This amount does not take into account the payment of court orders, which would reduce the target by R$44.1 billion.

Experts interviewed by Broadcast, however, point out that the government’s plan is too dependent on extraordinary revenue and requires great political coordination, especially with Congress.

There are R$46.747 billion in revenues subject to the goodwill of deputies and senators, divided into three fronts: the increase in the personal income tax rate on JCP (R$6.008 billion), the increase in the Social Contribution on Net Income (CSLL) rates (R$14.939 billion) and the compensation for the payroll tax relief (R$25.8 billion).

Furthermore, the 2025 PLOA foresees that the format proposed by the government to fund the Auxílio Gás program will be accepted. Under the new terms, there will be expenses for the program outside the public budget – and, therefore, outside the expenditure limit of the fiscal framework.

One sign of the extent of market uncertainty is the difference in interest rate expectations in the DI curve, in the Copom options and in the Focus Bulletin. In the first, there is an expectation of a 40 basis point increase in the Selic rate in September (60% chance of the rate rising to 11.00%). In the options, the most likely scenario (43%) is a 25 basis point increase, and in the Focus Bulletin the expectation is that it will remain at the same level.

The rate for the DI contract for January 2026 rose to 11.985%, from 11.851% in the previous adjustment. The rate for January 2027 increased to 11.980%, from 11.927%, and the rate for January 2029 advanced to 12.150%, from 12.089%. The rate for January 2025 closed close to stability at 10.985%, from 10.999%.