Brazilian central bank official says risks to fiscal outlook remain

10:28 am Monday, January 13th, 2025

By Marcela Ayres

BRASILIA (Reuters) -The Brazilian central bank’s economic policy director said on Monday the country’s fiscal outlook still requires attention, even though the 2024 primary budget target had likely been met by the government. 

Speaking on a live broadcast hosted by Bradesco Asset Management, Diogo Guillen highlighted uncertainties regarding the achievement of fiscal targets in the coming years and analysts’ projections pointing to a rising debt trajectory.

Finance Minister Fernando Haddad had previously said that the government likely ended last year with a deficit of 0.1% of gross domestic product (GDP), within the zero-deficit goal that had a tolerance margin of 0.25% of GDP either way.

According to Guillen, a less uncertain but more adverse scenario allowed the central bank to signal 100-basis-point interest rate hikes at each of its next two policy meetings through March.

“It was one of the main messages we conveyed,” he said.

“Guidance is set, we will continue to monitor activity, inflation data, impact on projections,” he added.

In December, policymakers accelerated the tightening cycle with a 100-basis-point increase that brought the benchmark Selic rate to 12.25%.

Looking ahead, Guillen said it is important to assess the impact of U.S. President-elect Donald Trump’s policies on the economy, including how they will affect the exchange rate, expectations, and inflation dynamics in Brazil.

While acknowledging those were critical topics to monitor, given their inevitable influence on domestic monetary policy, he stressed that recent developments have been more influenced by local conditions.

That includes the resilience of economic activity, the state of credit markets and the fiscal situation, Guillen said.

He added that harmony between monetary and fiscal policies was “the best answer to bring inflation to the target,” emphasizing that policymakers are “fully convinced” they have the tools to achieve the 3% inflation goal.

Inflation in Latin America’s largest economy hit 4.83% in 2024.

(Reporting by Marcela Ayres; editing by Gabriel Araujo and Paul Simao)