Fiscal Easing Complicates the Central Bank’s Work

BRAZIL ECONOMICS - Report 30 Sep 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The economy is growing faster than its potential, as confirmed by labor market data. In August, the unemployment rate, adjusted for seasonal effects, reached the lowest level in the series. However, the preliminary inflation data for September showed favorable signs, which we believe are temporary.

In an environment marked by inflationary risks, the Central Bank (BCB) began a cycle of monetary tightening, but we remain skeptical about the COPOM’s commitment to bringing inflation to the center of the target. Moreover, fiscal policy is likely to remain at odds with monetary policy, staying on an expansionary path.

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