JP Morgan Warns of High Selic Rate Due to Fiscal Adjustment Failures

JP Morgan evaluates that the fiscal adjustment package presented by the Brazilian government has limited structural progress. The institution questions the durability of these measures and the administration's ability to balance public accounts. This negative perception points to the Central Bank maintaining the Selic rate at 13.75% throughout the coming year.

Bank analysts state that the planned fiscal effort may be offset by pre-election measures. Projects such as the Bolsa Família readjustment and the Desenrola program total approximately R$ 40 billion in spending. This amount compromises a large portion of the R$ 50 billion to R$ 60 billion in savings projected for the next fiscal year.

JP Morgan's projection for next year's primary result remains below the official target of 0.5% of the Gross Domestic Product. The scenario becomes even more challenging given the loss of momentum in national economic activity. Fiscal fragility directly impacts the exchange rate and inflation expectations in the country.

Even with the Monetary Policy Committee's stance on the current level of restriction, the bank sees room for a new interest rate hike cycle. Currency devaluation and deteriorating expectations are factors that pressure the conduct of monetary policy. Uncertainty regarding the trajectory of public accounts remains the main obstacle to economic stability.