A recent decline in inflation expectations in Brazil demands a swift response to prevent potential harm to the economy later on, which means a change in direction towards a new increase in the country’s basic interest rates. This view was defended by Felipe Guerra (photo/internet reproduction), CEO of Legacy Capital. According to him, “the longer we wait (to raise interest rates), the harder it will be to fix. We believe that, given the exchange rate of R$ 5.45, the BC should prepare the market and the Government for a potential rise (in the Selic rate) in September”. He adds that market projections for inflation should go above 4% this year and next, which would force the BC to include an inflation expectation of 3.60% in its model, thus above the 3% target.
