Brazil Central Bank More Upbeat Than Economists on 2022 Growth

(Bloomberg) -- Brazil’s central bank is more optimistic than economists about next year’s growth forecasts but didn’t change expectations for consumer prices in its quarterly inflation report.

Policy makers raised projections for 2021 gross domestic product to 4.7% from prior 4.6% and now forecast 2.1% growth next year, according to their quarterly inflation report released on Thursday. Economists surveyed by the bank sees GDP expanding 5.04% this year and 1.57% for next.

“Recent economic indicators continue to show a positive evolution of domestic activity, in line with the prospective scenario, which displays a robust recovery during the second half of the year,” they wrote.

Inflation projections were kept unchanged from the minutes of their latest interest-setting meeting: at 8.5% and 3.7% for 2021 and 2022, respectively. 

What Bloomberg Economics Says

“Brazil’s central bank used its quarterly inflation report to deliver a somewhat less hawkish message: inflation may remain under pressure for a while due to a series of temporary, exogenous shocks, which have also driven inflation expectations up. Still, it believes monetary policy is working as it should, and the institution’s credibility remains unscathed.”

-- Adriana Dupita, Brazil economist

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Policy makers led by central bank chief Roberto Campos Neto have been among the most aggressive in the world, hiking interest rates by 425 basis points since March to 6.25%. They have also signaled a third consecutive full percentage-point increase in October. Still, consumer prices in mid-September were more than twice the target at 10.05%, the highest since 2016. A severe drought has forced the government to raise electricity bills, while food staples and services get more expensive as the economy reopens.  

The central bank’s board considered larger interest rate hikes last week but opted to keep a 100 basis-point pace, saying it would take monetary policy to a “significantly restrictive” territory, bringing inflation to target next year. Most analysts see the Selic at 8.25% by December and 8.50% by the end of 2022 with consumer prices remaining above target both years. 

Although robust economic growth is expected for the second half of 2021, uncertainties continue to swirl around the job market and fiscal risks. Central bankers take the view that their current tightening stance allows them to “obtain more information about the state of the economy and the persistence of shocks,” according to the minutes of their last meeting. 

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