Analysts expect Brazilian currency to strengthen this year

Illustration: André Chiavassa/TBR

The Central Bank’s latest Focus Report, a weekly survey of leading banks and investment firms, showed a general improvement in market projections for the Brazilian economy in 2024. Forecasts for inflation and the exchange rate, as well as the estimates for the trade balance, increased significantly.

Analysts expect the official inflation index to end the year at 3.87 percent, down from 3.93 percent two weeks ago. Even with a return of food inflation, mainly due to climate issues, the challenge of bringing prices closer to this year’s 3.5 percent target should be easier.

This week’s Focus Report also shows that analysts expect a stronger Brazilian currency by year-end, with U.S. dollar prices below the psychological threshold of BRL 5 — more precisely, BRL 4.95.

This is largely due to a slightly improved global economic scenario — with the U.S. Federal Reserve expected to start cutting interest rates this month — the recently approved tax reform, and the expected return of foreign investors to the country despite the growing fiscal deficit.

Financial institutions and investment firms also expect Brazil to run a trade surplus of at least USD 75 billion in 2024, up USD 6 billion from projections made two weeks ago. Many analysts are beginning to see last year’s record trade surplus of USD 98.8 billion as a structural change.

This means that 2024’s result could be slightly lower than last year’s due in part to lower Chinese demand, but it also means that Brazil’s foreign trade levels will remain higher. It’s a much more optimistic projection than last week’s USD 70.5 billion, but is well below the federal government’s official forecast of nearly USD 95 billion.

Meanwhile, growth forecasts for the Brazilian economy remained unchanged, with the average projection for 2024 GDP sitting at 1.59 percent. Analysts are awaiting next Thursday’s release of the December IBC-Br, a Central Bank index considered a reliable bellwether of official gross domestic product, to review their numbers.

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.