In a development reflecting global financial dynamics, Brazil’s central bank is set to raise interest rates, though less aggressively than market expectations. This shift comes amid the Federal Reserve’s easing cycle, which JPMorgan & Chase Co. suggests creates a favorable environment for risk assets.
Bloomberg reports that Brazil’s central bank will implement a 25 basis point increase in borrowing costs this Wednesday, following the Federal Reserve’s move to lower rates. Cassiana Fernandez, the head of Latin America economic research at JPMorgan, anticipates that Brazil will lift its benchmark Selic rate to 11.5% by January. This adjustment, intended to address inflation and bolster investor confidence, is expected to be followed by rate cuts by mid-2025.
Fernandez describes the current economic scenario as a “Goldilocks” moment for risk assets, due to more accommodative financial conditions in the U.S. without triggering a recession. This environment, she notes, will provide space for central banks, including Brazil’s, to moderate their rate hikes compared to market predictions.
Despite the market’s anticipation of a series of hikes pushing Brazil’s key rate near 12.25% by March, the actual adjustments are likely to be more tempered. Brazil’s economic performance has exceeded growth forecasts, with fiscal spending and low unemployment contributing to robust growth. However, this has raised concerns about potential price pressures.
JPMorgan also highlights recent credibility issues facing Brazil’s central bank. A contentious vote in May, where President Luiz Inacio Lula da Silva’s appointees favored a more aggressive rate cut, exacerbated concerns about the bank’s inflation stance. Governor Roberto Campos Neto’s more cautious approach has sought to counteract these fears.
Gabriel Galipolo, the prospective new governor, has emphasized his commitment to controlling inflation despite initial perceptions of him as a proponent of lower rates. As he awaits Senate confirmation next month, his stance will be crucial in shaping Brazil’s future monetary policy.
Overall, Bloomberg’s coverage underscores a pivotal moment for Brazil’s economic strategy, influenced by both domestic and international factors.
