Inflation Expectations and Rate Cuts
Brazil’s central bank emphasized its commitment to maintaining an easing pace in future policy meetings, despite recent downward surprises in current inflation. While inflation for the quarter ending in November was 40 basis points lower than expected, the central bank stated that expectations for the coming years remain above the official target. Private economists surveyed by the central bank anticipate inflation of 3.93% in the upcoming year, with expectations at 3.5% for 2025 and 2026. In response, policymakers reiterated their plan for additional 50 basis point interest rate cuts in the upcoming rate-setting meetings, citing the need for a contractionary monetary policy to support the disinflationary process.
Forecast on Economic Growth and External Accounts
The central bank slightly revised its economic growth forecast for this year to 3.0% from the previous estimate of 2.9% in September. However, the outlook for next year’s growth decreased to 1.7% from 1.8% previously projected. Policymakers anticipate moderation in household consumption and a resurgence of investments, while maintaining a favorable balance in external accounts. The projected current account deficit is set to increase to $35 billion in 2024 from $26 billion in 2023 due to a smaller trade surplus. The central bank expects the trade balance to remain positive at $73 billion next year, down from $79 billion in the current year.
Bank Lending Forecasts
The central bank also forecasted a rise of 8.8% in bank lending for 2024, accelerating from the estimated 6.8% expansion for the current year. This projection indicates potential growth in lending activity for the upcoming year. By adhering to a steady outlook for its future steps, despite some economists’ expectations for larger rate cuts, Brazil’s central bank aims to strike a balance between addressing local inflation concerns and navigating the evolving global economic landscape.