JPMorgan expects higher interest rates and weaker growth in Brazil amid political and inflationary pressures By Reuters

© Reuters. Man walks past JP Morgan Chase’s International Headquarters on Park Avenue, New York, July 13, 2012. REUTERS/Andrew Burton

SAO PAULO (Reuters) – Amid growing domestic political and inflationary pressures, JPMorgan raised its projections to the rate level at the end of the current interest rate tightening cycle and worsened its outlook for the growth of the Brazilian economy this year and next .

The bank revised its forecast for base rates to 9% from 7.5% previously, expecting three 1 percentage point hikes by the end of 2021 and a final 0.75 point hike by early 2022.

With the expectation of an even tighter monetary policy, JPMorgan revised downwards the estimate of Brazil’s (GDP) growth to 5.1% this year and 0.9% next year. Previous estimates were for expansion of 5.2% and 1.5%, respectively.

“The growing political tensions and inflationary pressures drove the interest rate projections up and growth down,” wrote Cassiana Fernandez and Vinicius Moreira, from JPMorgan.

The US creditor highlighted the recent turmoil in the local political arena — intensified last week during protests on Sept. 7 by President Jair Bolsonaro’s attacks on Supreme Court (STF) ministers.

While the chief executive has since tempered the rhetoric, “the risk of renewed tensions remains high before the 2022 electoral cycle,” said Fernandez and Moreira.

The political affliction still divides attention with an inflation that “continues to surprise upwards”, according to them, which is increasing the pressure for the central bank to tighten its monetary policy even more.

JPMorgan projects an increase of 7.9% in 2021, a level well above the target of 3.75%, which has a margin of 1.5 percentage points more or less.

Speaking about the perspectives for 2022, JPMorgan stated that weather conditions will play an important role in the inflation dynamics amid the serious crisis in the supply of Brazilian water reservoirs.

“We continue to see a more favorable development in relation to the water and energy supply crisis… However, we see increasing chances of a downside in the water crisis, particularly as authorities limit the impact on prices, leading to energy shortages unwanted.”

(By Luana Maria Benedito)

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