Latest news with #MarioMesquita
Reuters
28-05-2025
- Business
- Reuters
Brazil's central bank unlikely to cut rates before 2026, Itau says
May 28 (Reuters) - Brazil's central bank is unlikely to have room to cut interest rates before next year, and even then the risk is tilted toward further delays, economists at Itau Unibanco ( opens new tab, the country's largest private lender, said on Thursday. Itau chief economist Mario Mesquita told an event in Sao Paulo sponsored by the lender that the central bank likely will keep borrowing costs unchanged for a prolonged period to ensure that inflation expectations return to the official 3% target. Policymakers raised the benchmark Selic rate by 50 basis points this month to 14.75%, its highest level in nearly two decades, and dropped all forward guidance, stressing the need to maintain restrictive policy for an extended period. "We believe the central bank likely ended its hiking cycle at the last meeting. But we see no room for rate cuts this year," Mesquita said. "Rate cuts will come only next year, with more risk of them being postponed from the first quarter to the second quarter than brought forward," Mesquita added. Itau economist Julia Gottlieb, also speaking at the event, said the recent hike in the financial transactions tax (IOF) announced by President Luiz Inacio Lula da Silva's government - covering corporate credit, private pension contributions and foreign exchange transactions - was equivalent to a monetary tightening of up to 25 basis points. "There are still discussions underway in Brasilia that could change the final design of the IOF hike," Mesquita noted, referring to the measure initially expected to generate 20.5 billion reais ($3.60 billion) in revenue this year. The government has since scaled back part of the package, reducing the expected gain by about 2 billion reais. Gottlieb also estimated that new rules for payroll-deductible loans could boost Latin America's largest economy by as much as 0.6 percentage points over a year. Itau forecasts Brazil's gross domestic product (GDP) will grow 2.2% in 2025, slowing from 3.4% last year. ($1 = 5.6927 reais)
Reuters
18-02-2025
- Business
- Reuters
Itau chief economist calls for Brazil to reinstate spending cap
BRASILIA, Feb 18 (Reuters) - The chief economist at Brazilian bank Itau, the nation's largest private lender, urged whoever wins next year's presidential elections to reinstate a spending cap to bring back "civilized" interest rates. Mario Mesquita, at an Itau event, joined a chorus of prominent economists calling for fiscal discipline in more dire tones, even as Brazilian assets have rebounded from a late-2024 sell-off triggered by disappointment with public spending cuts. "The only regime that allowed the central bank to pursue the inflation target with lower nominal and real interest rates, more in line with other countries, was the spending cap," said Mesquita, referring to a constitutional rule that limited spending growth to the inflation rate from 2017 to 2022. "To think we can have civilized nominal and real interest rates aligned with global standards, with Brazil's current fiscal policy, is self-deception," the former central bank director added. Last week, former central bank governor Arminio Fraga said Brazil was showing "severe symptoms of a patient in the ICU," with interest rate futures "through the moon," and insisted that fiscal discipline was crucial to fight inflation. Brazil's currency has gained more than 8% so far this year, after dropping more than 20% in 2024, while interest rate futures have begun to ease after sharp gains in December. Still, many economists remain concerned about President Luiz Inacio Lula da Silva's resistance to stronger fiscal tightening. Brazil's rising public debt has gotten much more costly as the central bank hikes interest rates aggressively to tame inflation driven by a heated economy and a weakened exchange rate. The constitutional spending limit, approved nearly a decade ago, was initially seen as a key fiscal anchor, along with other major reforms that helped bring five-year interest rates down to around 6%, compared to roughly 14% today . However, Lula's predecessor introduced a series of pandemic-era exceptions to the spending cap, eroding investor confidence and raising doubts about its sustainability. In 2023, Lula replaced the constitutional spending cap with a more flexible framework allowing real expenditure growth of up to 2.5%, combined with primary budget targets.
