Brazil Sees 2024 Monetary Policy Not As Restrictive As This Year's

• Brazil's government expects monetary policy next year not to be as restrictive as in 2023, an economy ministry official said on Monday, April 10, stressing that a new fiscal framework proposed by the administration would help bring interest rates down.
• Brazil's finance ministry unveiled a proposal for new fiscal rules to balance limits on spending growth with the government's vow to boost social programmes and public investment, lifting local markets after months of uncertainty.
• The new rules would allow public spending to grow between 0.6% and 2.5% per year above inflation. Spending growth would also be limited to 70% of revenue growth in the prior 12 months. The full text of the proposal is expected to be released sometime this week.
• Economic Policy Secretary Guilherme Mello noted that central bank chief Roberto Campos Neto had praised the proposed framework, despite him saying the new fiscal rules would not mechanically affect interest rates. "From the moment the monetary authority recognizes the quality of the fiscal framework, the prospect of monetary easing emerges," Mello said in an interview with Globo News.
• Currently, Brazil’s Central Bank, The Banco Central do Brasil (BCB) has been closely watching core inflation, which at 7.9% has been consistently higher than headline inflation (5.6%) (which has cooled largely due to a drop in fuel prices).
• Given where core pressures sit, economists expect that BCB will be cautious about lowering interest rates despite political pressure to cut borrowing costs, and therefore share the same sentiments that the effect of the new fiscal framework in creating a less restrictive monetary policy is still yet to be seen.

(Sources: Reuters & Fitch Solutions)