Interest rate – new cuts ahead

BRAZIL ECONOMICS - Report 12 Aug 2019 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

As the economy is stagnant and GDP operating below its potential (high unemployment and large industrial capacity slack), and inflation (current and expected) below the target, all the elements are in place for the Central Bank to cut the SELIC rate further. The most recent published indicators show there are no signs of a change in the picture of the Brazilian economy stagnation. For GDP to grow by 0.8% this year (our projection), substantial acceleration will be necessary in the second half, of which there is no evidence, meaning that such projection is probably overly optimistic. Therefore, inflation should remain low, allowing the Central Bank to continue cutting the SELIC rate to 5% by the end of the year.

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