BRASILIA (Reuters) -Brazil’s government on Thursday cut its economic growth forecast for this year to 2.3% amid the impact of ongoing monetary tightening and lifted its inflation outlook, though still projecting a more benign scenario than the market.
The finance ministry’s economic policy secretariat now expects consumer prices to rise 4.8% this year, up from a previous forecast of 3.6% in November, when it projected GDP growth would reach 2.5% this year.
That would mark a slowdown from the estimated 3.5% economic growth in 2024. Official GDP data is set for release in early March.
Inflation this year will be “impacted by lagged effects of currency depreciation and (inflationary) inertia,” the secretariat said.
Latin America’s largest economy targets 3% inflation, with a tolerance range of 1.5 percentage points in either direction, meaning the government expects inflation to breach the upper limit for a second straight year. In 2024, inflation reached 4.83%.
Despite the more modest outlook for economic activity and the more challenging inflation forecast, government projections remain more optimistic than those of the market. Private-sector economists surveyed weekly by the central bank expect the GDP to grow 2.03% this year, with consumer prices rising 5.58%.
The central bank has stressed that the economy, which has consistently outperformed expectations, needs to slow down to ease inflationary pressures.
Central bank head Gabriel Galipolo emphasized on Wednesday that policymakers will take as much time as necessary to assess whether this cooling trend is firmly in place.
The central bank raised interest rates by 100 basis points in late January to 13.25% and signaled a hike of the same magnitude for its next policy meeting in March.
(Reporting by Marcela Ayres; Editing by Kylie Madry)
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