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Itaú Macro Scenario: Between Optimism And Old Challenges in 2024

BRAZIL
  • Itaú have revised their USDBRL forecast for 2024 to 4.90 (from 5.25), based on a perceived improvement in the international environment, with the U.S. Federal Reserve expected to start cutting interest rates earlier next year. Low domestic risk premium and a good trade balance performance also support the currency. Regarding monetary policy, Itaú now expect a terminal rate of 9.00% at the end of the cycle (vs. 9.50% previously), based on the outlook for lower-than-anticipated inflation in 2024 and relief in the external scenario.
  • On inflation, Itaú lowered their IPCA forecast in 2024 to 3.6% (from 4.0%), incorporating the impact of a stronger exchange rate on tradeable prices. Furthermore, still-high inventory levels suggest more benign dynamics in the core measure for underlying industrial products. The balance of risks for 2024 is symmetric. For 2025, given the de-anchored long-term inflation expectations and a still-tight labour market, Itaú see inflation at 3.5%.
  • On the fiscal side, the target for the primary budget in 2024 will remain at zero, at least in the short term. That said, fiscal risks remain high considering the uncertainty surrounding the government's willingness to curb expenses and the effective impact on government revenues from the measures approved this year. Itaú revised their estimates for the primary budget deficit to 2.3% from 1.0% of GDP in 2023 and to 0.8% from 1.2% of GDP in 2024, reflecting the new timing and full classification of court-ordered payments as primary expenditures, as well as the extraordinary revenues expected for these years.
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