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BRAZIL: Itaú Sees Selic Rate Reaching 13.50% Next Year

BRAZIL
BulletEM BulletEmerging Market News
  • Itaú estimates that, to comply with the original format of the fiscal framework, expenses will require an adjustment of at least BRL 60bn in 2025 and BRL 35bn in 2026. Itaú maintain their 0.4% of GDP primary budget deficit forecast in 2024, but revise their call for 2025 to -0.7% of GDP (from -0.8%), amid higher revenues due to a resilient labour market.
  • Fiscal and external uncertainties and the outlook for a stronger USD globally lead them to revise their USDBRL projections to 5.70 in 2024 and 2025 (from 5.40 and 5.20, respectively). While maintaining a 3.2% GDP forecast for this year, they have trimmed their 2025 estimate by 20bp to 1.8%, due to higher interest rates, reduced fiscal stimulus and downward revisions in global growth forecasts.
  • Itaú’s CPI inflation forecasts have also risen by 40bp to 4.8% for this year, and 80bp to 5.0% next year. Faced with a weaker currency, still-resilient activity, unanchored inflation expectations and mounting risks, they expect the BCB to reassess the degree of monetary tightening and move further, and faster, into contractionary territory. Itaú now expects the Selic rate to reach 13.50% in 2025 (vs. 12.00% previously) and remain at that level until the end of next year.
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  • Itaú estimates that, to comply with the original format of the fiscal framework, expenses will require an adjustment of at least BRL 60bn in 2025 and BRL 35bn in 2026. Itaú maintain their 0.4% of GDP primary budget deficit forecast in 2024, but revise their call for 2025 to -0.7% of GDP (from -0.8%), amid higher revenues due to a resilient labour market.
  • Fiscal and external uncertainties and the outlook for a stronger USD globally lead them to revise their USDBRL projections to 5.70 in 2024 and 2025 (from 5.40 and 5.20, respectively). While maintaining a 3.2% GDP forecast for this year, they have trimmed their 2025 estimate by 20bp to 1.8%, due to higher interest rates, reduced fiscal stimulus and downward revisions in global growth forecasts.
  • Itaú’s CPI inflation forecasts have also risen by 40bp to 4.8% for this year, and 80bp to 5.0% next year. Faced with a weaker currency, still-resilient activity, unanchored inflation expectations and mounting risks, they expect the BCB to reassess the degree of monetary tightening and move further, and faster, into contractionary territory. Itaú now expects the Selic rate to reach 13.50% in 2025 (vs. 12.00% previously) and remain at that level until the end of next year.