Brazil's Q2 Economic Surge Fuels Bets on Imminent Interest Rate Hike

• Brazil's economy surprised to the upside in the second quarter, increasing bets on an imminent interest rate hike to curb inflationary pressures as the central bank gears up for its upcoming policy decision this month.
• Gross domestic product expanded 1.4% in the June 2024 quarter, accelerating from the revised 1.0% growth recorded in the March 2024 quarter, statistics agency IBGE (Brazilian Institute of Geography and Statistics) said on Tuesday, September 3, 2024.
• The quarter-on-quarter performance was above the 0.9% increase expected in a Reuters poll of economists. Year-on-year growth reached 3.3%, surpassing the 2.7% increase projected in the poll.
• "Overall data suggest a resilient economy, and the exchange rate hasn't recovered. In other words, two key conditions for a rate hike are met," said Jose Francisco Goncalves, chief economist at Banco Fator. He expects a 25 basis-point increase at the central bank's next policy meeting on Sept. 17-18. The central bank has kept its benchmark interest rate steady at 10.50% since June.
• "Today’s very strong domestic demand data increase significantly the odds of a rate hike at the September meeting," said Goldman Sachs economist Alberto Ramos.  Previously, there was a stronger consensus for a 25 basis-point hike, especially after central bank chief Roberto Campos Neto said the bank remained data-dependent and that any rate adjustment, if needed, would be gradual.

(Source: Reuters)