Sluggish economy

Industrial production contracted slightly in January, above all due to the mining sector, but the decline was less steep than expected. The recently poor retail sales recovered more significantly than expected (plus 2.5%). This does involve some questions due to strong seasonal effects and a recent change in the data calculation methodology.

Fiscal situation more or less stable

The news surrounding Brazil’s biggest problem child, government debt and budget deficits, was mixed. The budget surplus was somewhat higher than expected in January, but was still significantly lower than in January 2023. The budget deficit seems to be under control at the moment, but the long-term trend is still negative. Inflation declined in February. At a three-month average of close to 4%, core inflation was still around 1% higher than the central bank’s target.

Another interest rate cut

Despite this, it cut the key rate again, by 0.5%. This was the sixth interest rate cut in a row. However, the currency gatekeepers also reduced their outlook for further key rate cuts. Instead of “similar interest rate cuts in the coming central bank meetings”, all that was stated more recently was an interest rate cut in the coming meeting. The stock market in Sao Paolo was trailing the pack among the more important Emerging Markets in March with a decline of 3.5% in US dollar terms. However, the majority of this retreat was due to the weaker currency. In local currency, the stock index only retreated by 0.7%.