06/10/2024 – 10:36
Itaú’s macroeconomic research team, headed by former Central Bank director Mario Mesquita, revised its projection for the basic interest rate from 10.25% to 10.50% at the end of 2024 and 2025, according to a report released this Monday -Friday, 10.
In other words, Itaú predicts that the Selic will be maintained at 10.50% at this month’s meeting of the Central Bank’s Monetary Policy Committee (Copom).
“Amid rising inflation expectations — already partially unanchored —, resilient economic activity and greater domestic and external uncertainties, we understand that there is no more room for additional interest cuts,” states the bank in a report with macroeconomic forecasts for Brazil.
Focus research carried out by the BC with market agents showed this Monday that the median projections still consider a cut of 0.25 percentage points in the Selic when the Copom meets next week, on the 18th and 19th.
The last decision, when the rate was reduced from 10.75% to 10.50%, added volatility, mainly due to the division of votes. More recently, the market has already shown bets that the BC’s next move will be maintenance, among other reasons, due to the worsening of inflation projections.
Itaú maintained its forecast of a 3.8% increase for the IPCA in 2024, but considered that the risk balance remains asymmetric, with an upward risk in food — due to the delay in the return of in natura shocks and floods in the south of the country — and in services due to the tight job market.
For 2025, the bank’s economists calculate inflation at 3.7%, also citing upward risks.
Bank maintained GDP growth forecast of 2.3% for the year
The team led by Mesquita also maintained GDP growth estimates for 2024 and 2025 at 2.3% and 1.8%, respectively.
“The effects of the floods in the southern region of the country bring greater uncertainty for the second quarter and some downward bias for our closed number for this year, but we chose to wait for some more data to have a more precise dimension of the economic impact”, argued the economists.
Projections for the exchange rate continued at 5.15 reais per dollar in 2024 and 5.25 reais per dollar in 2025, as “external fundamentals — a strong dollar — and domestic fundamentals — an increase in the risk premium and a significant worsening of external accounts — make a more benign scenario for the currency difficult.”
On the fiscal side, the team led by Mesquita maintained the primary deficit estimates at 0.6% of GDP in 2024 and 0.9% of GDP in 2025, assessing that stronger revenue should offset expenses resulting from aid measures for the Rio Grande do Sul.
“Fiscal risk remains high, given the difficulty in achieving a persistent trajectory of convergence of primary results, the strong growth in mandatory expenses and the limits to the expansion of revenues, which implies the possibility of changes in the main parameters of the approved framework last year,” they said.
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