BRASILIA: Brazil analysts are raising their estimates for the benchmark interest rate after President-elect Luiz Inacio Lula da Silva got approval for a US$32bil (RM141.6bil) spending plan.
The benchmark Selic rate will end next year at 12%, up from a prior estimate of 11.75%, according to a weekly central bank survey published on Monday.
Annual inflation will hit 5.23% by the end of 2023, further above the monetary authority’s 3.25% target for that year.
Annual inflation eased to 5.9% by mid-December, the lowest since early 2021, with core measures that strip out the most volatile items improving and prices of services rising below estimates. Yet transportation costs rose as the impact of recent tax cuts on fuel continue to fade.
Policymakers led by Roberto Campos Neto are “closely” monitoring Lula’s plans to introduce a new financial anchor needed to keep public debt under control in the longer term.
They’ve warned that a reversal of the labour reform or an increase in subsidised public credit can “reduce the power” of their aggressive tightening cycle that lifted interest rates to 13.75% in over a year.
Last week, congress approved an expansion of the spending ceiling and additional resources for investment totalling 168 billion reais (US$33bil or RM146bil) for 2023.
The bill will finance a boost in salaries for the poor, a higher minimum wage and salary raises for public servants, key campaign pledges by Lula.
Analysts continued to revise up their inflation estimates in the medium-term.
They now see consumer price increases at 3.6% in 2024 and 3.2% in 2025.
The monetary authority’s goal is 3% for both years.
The Brazilian economy is the third largest in the Americas and according to to International Monetary Fund this year, it has the 12th largest gross domestic product expenditure. — Bloomberg
