Larger GDP drop, lower inflation, smaller interest rate cuts expected for Brazil in wake of Trump election

Brazilian Central Bank research released on 14 November 2016 showed economists expect a larger GDP drop, lower inflation, and smaller interest rate cuts for Brazil after Donald Trump's victory in the United States (Folha de S. Paulo, Valor). The Brazilian real continued to depreciate against a strengthening U.S. dollar following the election: The US$1 closed at R$3.45, a 1.47 percent gain on the day, and has gained 8.69 percent on the real since 8 November (Folha, Valor).

As a result of the strengthening of the US$ versus the Brazilian real, analysts have applied a downwards revision on many predictions for the Brazilian economy. The new forecasts reflect the expectation that the Central Bank will take a more conservative approach to monetary policy following the devaluation of the real. Analysts revised their GDP outlook downwards from -3.31 percent to -3.37 percent, while 2017 forecasts were reduced from +1.20 percent to +1.13 percent. Economists believe the Selic rate will close 2016 at 13.75 percent, with a 0.25 percent cut in the Comitê de Política Monetária’s final meeting of the year, rather than the previous prediction of 13.50 percent. Median projections for the end of 2017 remain at 10.75 percent. Twelve-month forward median inflation projections decreased from 4.95 to 4.93 percent, while median expectations for 2016 total inflation decreased from 6.88 to 6.84 percent.