Itaú BBA - Pension reform advances, giving green light to interest rate cuts

Brazil Scenario Review

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Pension reform advances, giving green light to interest rate cuts

July 12, 2019

We expect the BCB to initiate a new monetary easing cycle at its meeting in late July, with a 50-bp rate cut.


Please open the attached pdf to read the full report and forecasts.

 

• We have left our GDP growth forecasts unchanged at 0.8% in 2019 and 1.7% in 2020.

• The pension reform main text has been approved in a first-round vote in the Lower House and we believe that the final version of the bill is likely to be passed by Congress by the end of 3Q19. In our calculations, after the amendments are approved, the final text will generate BRL 865 billion in savings over the next 10 years. Our primary budget deficit estimates are 0.9% of GDP in 2019 and 1.2% of GDP in 2020.

• Our year-end exchange rate forecast also remains at 3.80 reais per dollar in 2019. As the global environment has become less favorable, we expect a depreciation to 4.00 reais per dollar in 2020.

• Our IPCA consumer price index estimates remain at 3.6% for both this year and next.

• We expect the central bank’s monetary policy committee (Copom) to initiate a new monetary easing cycle at its meeting in late July, with a 50-bp cut in the Selic rate.


 

Please open the attached pdf to read the full report and forecasts.



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