An increase in the basic rate of Selic interest, which is at the lowest historical level of 2%, will be more productive for the Brazilian economy this year. The assessment is by the chief economist of Santander Brasil, Ana Paula Vescovi, who released the review of the economic scenario for this year.
Santander estimates that the Central Bank should start a cycle of high interest rates in the first half, with the Selic reaching 4% at the end of the year. At the end of this cycle, the interest rate should close at 6%, a scenario forecast for the end of 2022 or the beginning of 2023.
But an increase in nominal interest rates, instead of slowing the economy, as it increases the cost of money, could have the opposite effect.
– This is not something I normally say. But the drop in interest rates to 2% turned out to be counterproductive for the economy. This level of interest brought volatility to the dollar and stretched the curve of longer interest rates, which inhibits investment decisions. Incredibly, an increase in nominal interest rates may be more productive for the Brazilian economy, because it will curb the interest curve and reduce exchange rate volatility – says Vescovi.
For Vescovi, this year, vaccination, the return of mobility and the fiscal scenario will be decisive for the resumption of the economy and not monetary policy.
In Santander’s estimate, the government should spend R $ 25 billion this year, outside the spending ceiling, with the reissue of the emergency aid. But the expense will be temporary and can be compensated in time with the approval of fiscal measures, such as PEC Emergencial, which would bring savings of R $ 10 billion next year and in the following years.
Vescovi notes that the spending of R $ 25 billion, even though it is temporary, does not remove the fiscal risk. The economist does not believe in a further deterioration of the fiscal framework, but the ceiling will be tightened in 2021 and a little looser in 2022.
The economist assesses that the compensation of the extra expenses may come with the approval of the Emergency PEC. One of the proposals of this PEC provides for another year without adjustment for public servants.
“Freezing wages is one of the most important points,” said the economist.
The bank predicts that Brazil should reach the end of the year with 48% of the population immunized against Covid-19, which will lead the economy to a 2.9% growth in 2021.
– This year, vaccination, the return of mobility and the fiscal scenario will be decisive for the resumption of the economy and not monetary policy – said Vescovi, in a conversation with journalists.
If all the vaccines in the National Vaccination Operationalization Plan were effectively purchased, says the Santander report, Brazil would have about 156 million vaccinated people (73% of the population) by the end of 2021. Santander’s baseline scenario, however, it predicts a 20% delay in vaccination and estimates that 59% of the population will be vaccinated, with an average effectiveness of 60%.
In addition, the bank also considers immunity acquired by previous infection, which would lead to an immune population of 48% by the end of 2021.
– But the economy is going to get worse before it gets better. With yet another wave of contamination, with new variants of the virus, the first quarter should have a negative GDP. But in the second half, the Gross Domestic Product (GDP) gains traction, with approval of new vaccines by Anvisa, better logistics, mobilization of more health professionals – said Vescovi.
In Santander’s estimate, there is little room for the real to appreciate this year. The dollar should remain under pressure with the American currency reaching the end of the year quoted at R $ 5.20 of the R $ 4.60 previously forecast by the bank. As a result, the expectation for official inflation for this year rose from 3% to 3.60%.
If Santander maintained the expectation of economic growth to 2.9% this year, for 2022 it reduced the estimate from 2.5% to 2.3%.