Itau forecasts Brazil downturn in 2022
SAO PAULO, Oct 25 (Reuters) - Brazil's economy is likely to shrink next year as the central bank hikes interest rates amid concerns over more government spending, analysts at Latin America's largest bank said on Monday, drawing a rebuke from Economy Minister Paulo Guedes.
Economists at Itau Unibanco revised their 2022 economic growth forecast to -0.5% from 0.5%, adding that they expect Brazil's benchmark interest rate will climb to 11.25% as the central bank attempts to keep inflation in check.
The bank had previously seen interest rates peaking at 9%.
Brazilian stocks and the real currency took a beating last week after the government of President Jair Bolsonaro - who is expected to run for re-election next year - moved to raise the nation's constitutional spending cap, sending four key Treasury officials to the exits https://www.reuters.com/world/americas/brazil-stocks-currency-plunge-rate-futures-rise-fiscal-fears-2021-10-21.
A looser fiscal outlook will force the central bank to make even more aggressive rate hikes, choking off a fragile recovery from a deep COVID-19 recession, Itau forecast.
The analysts now project interest rate hikes of 150 basis points at policy meetings this week and in December, up from increases of a full percentage point in recent meetings.
The Itau report added that additional hikes of 100 or 125 basis points would fail to rein in inflation, while anything more than 150 basis points could tip Brazil into a profound recession.
In a speech in Brasilia later in the day, Economy Minister Guedes appeared to shoot back at the Itau report, saying that the nation's economy had outperformed expectations in 2021.
"They're already saying (Brazil) isn't going to grow," Guedes said. "It's going to grow again." (Reporting by José de Castro; Additional reporting by Marcela Ayres in Brasilia; Writing by Gram Slattery; Editing by Sandra Maler)
