Halister News

(Bloomberg) -- “We think the right strategy to follow is for the central bank to keep interest rates stable in the next Monetary Policy Committee Meeting (30-31 May), in view of such high uncertainty and at least until the political risk fades away”, Credit Suisse’s analysts leaded by Nilson Teixeira say in a report.

• “Increased political uncertainty, possibly over a longer period, would lead to lower asset prices and a weaker economy in Brazil”
• “According to our macroeconomic models, the current scenario could be interpreted as a negative shock (increase) in the country’s risk aversion”
• Implications for Credit Suisse’s forecasts: the exchange rate would depreciate further; that would likely increase IPCA inflation to a level higher than 4.5%; GDP contraction in 2017 may become the most likely scenario; magnitude of the monetary easing cycle would probably be lower than in its base-case scenario (8.25% in 2017 and 9.0% in 2018)
• “After the likely GDP growth in 1Q17, there is a significant probability of a decline in quarter-on-quarter GDP growth in 2Q17”
  • “In a scenario of political turbulence and a lower contribution to economic activity from softer monetary easing than previously anticipated, business and consumer confidence should deteriorate”
  • “Thus, GDP growth in 2017 and 2018 should be lower than in our base-case scenario (0.2% in 2017 and 2.0% in 2018)”
• “The magnitude of the impact on our main forecasts is dependent on the political developments in the coming weeks”
  • “Quick resolution of the political situation would lead to a rapid resumption of the economic agenda and, consequently, reduce the impact of the high risk aversion on domestic fundamentals”
• “On the other hand, if the current uncertainty lasts longer, we may see further deterioration in economic activity and an additional decline in asset prices”
• Current political turmoil jeopardizes the government’s effort to approve urgent reforms in Brazil

To contact the reporter on this story: Leonardo Lara in Sao Paulo at llara1@bloomberg.net To contact the editors responsible for this story: Daniela Milanese at dmilanese@bloomberg.net Danielle Chaves