In theory, Brazil could be hit in two ways: if there is an increase in oil prices and a higher risk aversion in international markets

04/15/2024

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Central Bank’s building in Brasília: Few believe that Brazil’s monetary authority will rush to revise its baseline scenario for interest rate cuts — Foto: Beto Nociti/BCB

The uncertainties in the economic scenario that prompted the Central Bank to reduce its monetary policy signaling to just one meeting have heightened with Iran’s attacks on Israel.

This risk is already included in the array of uncertainties that the monetary authority cited in the release of the Inflation Report, which recommends greater caution in signaling future interest rate cuts.

It was also one of the points highlighted in a recent debate organized by the Central Bank with economists who received the Top 5 award, given annually to those who most accurately predict their projections.

In theory, Brazil could be hit in two ways. First, if there is an escalation in oil prices and, second, with increased risk aversion in international markets.

Brent oil had already been trading above $90 a barrel, and some economic analysts were already circulating their calculations regarding the lag in domestic prices. If oil prices continue to rise, it could lead to further postponements in interest rate cuts by the United States. The increase in risk aversion due to the escalation of the conflict would exacerbate this situation, prompting investors to redirect capital from emerging economies to the U.S.

Few think that, in an environment of such uncertainty, the Brazilian Central Bank will rush and revise its baseline scenario for interest rate cuts. The Selic policy rate remains high, and a 50-basis-point increase in May is well signaled, with a long way to go until the June meeting. Yet, the Central Bank is likely to exercise increased caution.

*Por Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/