It seems like many analysts are not expecting a rebound of the Brazilian economy in 2013… it will pretty much more of the same. Here is what Itau’s Chief Economist Ilan Goldfajn wrote about Brazil’s Central Bank published minutes of its Monetary Policy Committee (Copom) meeting in November:

“… In the document, the Copom reiterated its outlook for a rebound in domestic economic activity, partly due to the fact that the meeting was held before the release of weaker GDP data for 3Q12. The Copom also reaffirmed its confidence in the convergence of inflation to the targeted path in the longer term (2014).

According to the Copom, forecasts for the IPCA in 2014 are around the mid-point target in both reference scenario (with interest rates at 7.25% and the exchange rate at 2.10 reais to the dollar through the entire forecast horizon) and market’s scenario (the median forecast for interest rates and the exchange rate by market analysts). In the previous meeting, forecasts through 3Q14 were above the target in both scenarios. Evidence of a cool-down in wholesale prices mentioned by the Copom (paragraph 25) due to the recent decline in commodity prices may explain a large part of the better inflation outlook.

In the minutes, the Copom reaffirmed its growth scenario, which contemplated “a more intense pace of domestic activity this half and next year” (paragraph 25). As inflation forecasts are around the target, any deterioration in the growth outlook could lower forecasts to below the target-range mid-point in 2014. The negative surprise with 3Q12 GDP (released two days after the last Copom meeting) may in fact reduce inflation estimates from current levels and create room, in the Copom’s view, for further stimuli.

Interestingly, there was an indirect reference to the exchange rate as a significant aspect to future Copom decisions: “developments (…) in the asset market are an important part of the context in which future monetary policy decisions will be made” (paragraph 29). Excessive currency depreciation could threaten the convergence of inflation to the target, with consequences for monetary policy. In our view, the Copom works with an exchange-rate forecast that is not much weaker than current levels: “the prospects for the next halves indicate moderation in the price dynamics of some real and financial assets” (paragraph 25).

Due to the scenario faced by the Copom at the time of the meeting, the minutes conclude that “stability of monetary conditions for a sufficiently long period is the most adequate strategy” (paragraph 32).

However, given new information on economic activity, we understand that the Copom will promote new cuts in interest rates next year, as long as the other premises in its basic scenario are maintained – including the exchange rate being kept not much weaker than current levels.

We expect two 50-bp cuts in the Selic rate starting in March 2013, driving the benchmark rate to 6.25%, and remaining at that level until year-end.”

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15 Responses to No Rebound: “SELIC rate to reach 6.25% in 2013″, says Itau’s Chief Economist

  1. jay says:

    wtf do this idiots know ?
    arent those the same saying about boombastic growth in 2012 and 2013 ?

    yeah.. right..

  2. frank stein says:

    Those idiots cannot really change the prospects for the Brazilian economy. The person who can do something is Xi Jinping. Likely there will be stagflation in Brazil for several years.

  3. raffbr2 says:

    One of the best paid tea-leaf readers in the country. One thing is sure: further SELIC reductions will not change the bleak reality that the problem is not credit, but how crap this country is to invest and make money, legally.

  4. AcoBrasil says:

    I would like to see you guys run an article on this week’s round of civil construction stimulus and FGTS rumors from yesterday and an updated analytical piece on Gafisa (your bearish article written about a year ago was extremely insightful):

    1. FGTS, which provides mortgage loans through Caixa Economica Federal, is reportedly discussing the idea of raising the eligibility limits for loans from R$500 to $750 thousand. This is kind of like HUD loans, but interest rates are below market. This is projected to create R$ 700 million in revenue for the industry from pent-up demand in the new price range.

    3. The total civil construction packet announced on Tuesday is estimated at R$3.3 billion. The biggest change will be Social Security contributions that the construction industry must pay into. That will drop from 20% to 2% for the foreseeable future. Caixa Economica Federal will also be allotted an additional R$2 billion. The other two points are a bit beyond me, but it does look like one set of taxes will be reduced from 6% to 4%.

    I was as bearish as anybody regarding Gafisa during the past several years and remain bearish on the long term outlook for the Brazilian housing market and the Brazilian economy at large. However, Gafisa is really turning itself around. Under new management, they are slashing new project launches and are in the final stages of offloading the Tenda loans. They have also defined parameters for completing their purchase of Alphaville. A few days ago, they received an award for good governance and transparency. Despite falling revenues, profitability is looking up and there is finally some hope for bringing their debt load down to manageable levels.


  5. Enki Ea says:

    These so called “economists” know $h!t about real life and growth. Brazil and the rest of the World is in for a big reality check. No matter what governments do, things will collapse eventually and these “economists” will have nothing to say. The debt load all over the World is too great to handle. The system has broken. The fractional lending scheme is revealed. In other words: the emperor is naked!!!

  6. Rodrigo Rodrigues( Official) says:

    Dilma , Mantega and The crooks in Brasilia are engaged in a three-pronged assault on honest, prudent Brazilians Not content to merely drive down the  value of the real , now giving away taxpayer’s money to builders to keep pumping the already inflated UNreal estate market ,artificially-low interest rates steal money from savers, to the benefit of the same deadbeats, speculators and badly-run Companies . Mantega  repeats past mistakes and hands out incentives to builders ( Criminal associates)with insufficient conditions or regulation. 

     Meanwhile, the resulting speculation in commodity markets helps drive food and energy prices higher for the poor, even as wages stagnate because there are no real policy efforts to increase our productive capacity. There is no policy action to drive true public and private investment in the Main Street economy that generates TRUE demand based on producing goods and services (not the phony demand that comes from unsustainable debt). 
    In a perfect system of economic government, you would let markets decide everything but this world doesn’t exist due to the human aspect, All We see now is intervention and more of the same old policies that don’t work, We will always have politicians and lobbyist steering policy to benefit few,This UnReal estate industry was bent  on control ,not economics. The consumer and tax payer is under savage attack from its own institutions…..For a Controlled Market….Not a Free Market,The government adopted several policies for various political reasons that made it very easy to move money around,  they must  fix the institutions before anything else,these UNReal estate prices are not susteintable,Developing countries like Brazil were contaminated by this Wall street diabolic manipulation mentality
     of turning houses  into a commodity rather than an asset. As long as housing was an asset, it was real wealth, and its value would always go up. The moment it became a commodity, the values fluctuated Wildly.
    Thus far, ” Brazilian Bubble ”  have been successful at creating awareness of the general problem, and have inspired us  to realize that our society is built to benefit the absurdly small minority of the population and that this must be changed for the sake of the advancement of civilization itself. We have been experiencing none other than a devolution into the aristocracies and despotic governance of the past- the very forces we transcended that arose into the Enlightenment.
    Economy grows by people becoming more efficient and increasing production through entrepreneurship and savings that funds it. There are activities that don’t really grow an economy according to this very definition, if they don’t increase production,  a lot of the service sector work, no matter how the “official” calculation calculates the size of an economy aka Gdp.
    The buying and selling of houses and their accompanying industries like home furnishing, construction, etc on this housing boom certainly don’t increase the production in an economy,Reversing the aspects of capitalism that are negative is absolutely necessary, but by denouncing it utterly, the positive parts become casualties- the freedom of entrepreneurs to empower themselves to invent, produce, create, and trade.
    Out of the realm of political propaganda, every well informed person in this country knows the brazilian story has to do with commodity prices. It is not a coincidence that right now, with a monetary expansion coming to a halt, the only number moving up is commodity exports. 

    As in Argentina, I hope this to be one of the drivers that will allow the country to digest years and years of mismanagement, because Guido Mantega does not have a consistent plan, reverting measures he adopted mere months ago,Mantega is just a front man for Eike Batista, Fernando Cavendish, Cachoeira( a 2 year sentence!! A slap on the wrist!what a F*^%*ing Joke the Brazilian  judicial system is, no wonder investors are running like rabbits) this is criminal !, to market, advertise, finance properties that are overpriced, the population has no idea what they are getting into it, minha casa minha vida is just another scam to elude the hard working family ,now is just a matter of time  until we see unemployment growing , people defaulting on their mortgages, Families breaking apart  due to Goverment egothistics policies ,now the Media keeps talking about Pre Sal and the Brazilian Goverment is so proud of it, but ask yourself these questions. Are you paying more or less for gasoline?
    Are you paying more or less for propane gas? Are you paying more or less for diesel? SoDo you see more police on the streets?
    Can you go for a walk at night?
    Who is getting the benefits?
    What assets or strategies do we have left? Maybe bananas ? Or maybe this  disgraceful attitude towards Brazilian women trying to sell them as prostitutes.
    Oh I forgot to mention precious  metals, We have a world cup and Olympics event coming soon, How  Interesting this is gonna be,the gold and silver metals won by our athletes,could be melted  and sold helping the country, 
    Preparing the Bid for the 2016 Olympics required a report on how Brazil was to finance the event. In the Finance section of the Candidature File, Brazil reports they allocated USD $240 billon for the Olympics. These funds are from the PAC( Population aiding corruption),The truth of the matter with regard to the Olympics is that the initial budget was not costed, simply because the scale of the production was not yet known. The initial (meaningless) figure was doubled as soon as someone with a brain looked at what was required.
    We talking  about a whopping 1/2 trillion dollars.
    All comes to down to corruption at all levels, if is not attacked singaporean style ,brazilians are basically doomed.

  7. frank stein says:


  8. KB says:

    That Saci Pererê economic policy could lead to a stagflation scenario if things turn sour out there and the Real appreciate even more.

  9. johnberk says:

    to JAY

    They are paid to lie. Their only goal is to give exaggerated numbers in order to promote their own goal (or goals of their allies).

  10. Rodrigo Rodrigues says:

    Bovespa, like any stock exchange, reflects mainly social mood – which itself drives to a good part the bahavior of market participants in all parts of an economy. In this sense, yes, it reflects the future of the brazilian economy.
    We see BTW now more and more falling house prices in not-so-famous locations. 16-20%. F.e. in Jacarepagua, Rio. That reflects increasing pessimism among sellers. The super luxo market segment is almost frozen – reflecting increasing pessimism among buyers.

    Brazil still depends greatly on export. Take into account a hefty crisis in USA, EU, Japan and as it seems China and … to whom does Brazil want to sell now? To Mexico?

    I regret, I cant see a way for Brazil to prosper in this environment. But I expect that Brazil due to the dynamic of its population will leave the crisis-mode earlier than the above mentioned mature economies (except China) – does this serve for cheering you up a bit?

  11. Jack Ganoza says:


    The system, as it is and without structural changes aiming at pension reform, social security reform, labor market reforms, freer markets, red tape, etc, is simply NOT sustainable.

    The professional politicians will keep milking the stagnant, but fundamentally moribund, economy until collapse.The fact that Mantega is still defended by Rousseff is a huge signal that the political class is stuck in 1960-1970s applied socio-economic ‘ideology’.

    Big changes are required. The country could have a bright future. The political will to bear the brunt political costs is simply not there.

    A change in mentality is needed also. When the major employer in the country is the State, it is difficult to go against its foundations or even show dissent.

    Get ready to witness absurd level of intervention in markets in the weeks/months to come.

    It will be a bandage here, another one there next week. Welcome back to how economic policy was done in the 80s!

  12. Hong Kong Lee says:

    There you go again Rodrigo Rodrigues, always blaming other Countries.
    Leave China alone you Mug.

  13. Ohgod says:

    Brazil will muddle along. It will go back to the 80′s and probably fall below# 10 in terms of GDP which is where it belongs. Nothing there ever really changes since improvements are always temporary because of the political mindset that projects and plans are used for reelection not the public good. And that serves the people of Brasil correctly. They ask for a discount at every opportunity yet want to appear wealthy, how pathetic. As a percentage of income they give nothing to charity so how can they expect good karma? Better to save your money and buy the prostitutes after the world cup when they will be offering discounts, personally I am sick of Brasil and in the end they will sell all their Miami property.

  14. gringo nao sabe nada says:

    Well everyone, Feliz Natal. I hope you did not overindulge. BTW, what a great free party with Gil and Stevie Wonder. Pretty cool. So are things really going to hell in a handbasket, as Brazil Bubble and pessimists state.

    Sure, I agree there is not enough saving and investment. There is a lot of corruption and we have crappy schools, poor public safety and creaky infra-structure.

    Still, the country is 10 times wealthier than it was in the 80′s and political democracy and monetary stabilization have made a big difference in freeing up productive forces. No, it is not ideal and the government is the big employer and big investor but things are changing, not as fast as I would like as an old man but still much improved from the populist and then military governments of the 60′s. Who misses the 3 patetas or even Jango?

    Look at things with a longer historical perspective and the “bubbling” might not be so bad.

    Outra vez, feliz natal e um prospero ano novo, principalmente para quem trabalha.

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