Brazil Economists See Higher Key Rate and Slower Growth in 2022

Brazil Economists See Higher Key Rate and Slower Growth in 2022

Selic rate seen at 7.75% in 2022 and growth at 1.93%: survey. New increase on electricity bills worsened inflation forecasts

Brazil analysts raised their benchmark interest rate forecast for 2022 and lowered their growth expectations, as political uncertainty and high inflation weigh on the economic outlook.

The central bank will lift the Selic to 7.75% at the end of 2022, above the prior estimate of 7.50%, according to a central bank survey published on Monday. Analysts cut their economic growth forecast for next year to 1.93% from 2%.

President Jair Bolsonaro has stepped up his criticism of institutions including the Supreme Court, adding to political tensions. Meanwhile, annual inflation hit 9.30% in mid-August as severe drought pressures electricity costs. Last week the government increased energy rates, prompting many economists to raise their consumer price estimates for this year, and, in some cases, for 2022.

In the survey, analysts’ 2021 year-end inflation forecast was revised up for the 22nd consecutive week, to 7.58%. They see consumer prices reaching 3.98% in 2022.

Central bank President Roberto Campos Neto has said inflation inertia is worsening expectations for next year. The monetary authority targets annual inflation of 3.75% this year and 3.5% in 2022.

Earlier Monday, analysts at JPMorgan Chase & Co cut their estimates for gross domestic product in 2021 and 2022. A “tightening of financial conditions and the worsening of the water and electricity generation crises, weigh on agricultural output and reduce disposable income as prices are increasing” analysts including Cassiana Fernandez wrote in a research note.