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2025-09-15 20:49:28
Economic Activity Under Pressure: Where Does Brazil's Monetary Policy Head? (1) Brazil's economic activity index fell unexpectedly in July, dropping 0.5% month-over-month, marking the third consecutive month of contraction. This underscores signs of a slowdown in the country's economy under pressure from persistently high borrowing costs. The index, a leading indicator of gross domestic product (GDP), fell by 0.2% more than expected in the survey. (2) Component-wise, productive activity in agriculture, industry, and services, as well as related tax revenue, all showed negative growth in July, contributing to the overall decline in economic activity. Despite this, the index still showed a 3.5% increase in the 12 months ending in July, without seasonal adjustment. (3) Brazil's benchmark interest rate, the Selic, remains at a high of 15%, near a two-decade peak, aimed at curbing annual inflation that has consistently exceeded its 3% target. Markets generally expect the Central Bank of Brazil to maintain interest rates at its monetary policy meeting this Wednesday. ⑷ In addition, Brazil's Ministry of Finance lowered its GDP growth forecast for 2025 to 2.3% on Friday, from 2.5% previously, attributing the move to weaker-than-expected economic performance in the second quarter and pressure from a high interest rate environment.
