The Central Bank of Brazil’s rate-setting committee is set to conclude its October meeting today. Analysts widely expect the bank
The Central Bank of Brazil’s rate-setting committee is set to conclude its October meeting today.
Analysts widely expect the bank to maintain the Selic rate at its current level of 2%, but also to give guidance on how rising inflation will inform future action. Consumer prices have steadily risen over the last four months due to large fiscal stimulus programs. The annual inflation rate recently reached 3.14%, which falls within the margin of tolerance of the central bank’s target rate of 4%. Central Bank President Campos Neto has previously stated that inflation would be the primary driver behind a rate hike. As such, watch for any indication that this data could accelerate plans for a rate hike early next year.
Sustaining growth through 2021 will also depend on how Jair Bolsonaro’s government ultimately implements its new “Renda Cidada” welfare program. In order to fund the program, the administration plans to access funds for future debt payments through a contested accounting trick, but there are persisting concerns that a constitutionally set spending cap will be exceeded. Neither solution would address the underlying fiscal problems and would exacerbate the country’s debt burden.
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