The movement of future interest (DI) in recent months indicates the caution of investors about the direction of economic policy, in particular, fiscal policy. According to a survey carried out by the chief economist of Banco Modal, Felipe Sichel, for CNN Money, the futures interest curve points out that the rate is at 13.678% in January 2023, rises slightly and starts to fall slowly in 2024 until it reaches 12.862% in early 2031.
After the elections, with the approval of the Transition PEC forecasting almost BRL 200 billion more in public spending this year, and noises about the fiscal responsibility of the new government, they promoted a correction for the worse in expectations for interest rates. 90 days ago, in the market scenario, the rate would reach 11.6% in 8 years.
In the last three months alone, the long interest rate curve has risen by more than 1 percentage point, a movement considered to be very strong, with impacts on the perspective of Gross Domestic Product (GDP) growth.
Future interest rates traded on the market are one of the best indicators to measure risk perception in Brazil. The DIs demonstrate investors’ expectations for the country’s effective interest rate in the future. The Selic is currently at 13.75% and the papers maturing in January 2031 are at 12.83%. The greater the risks, the higher the fees charged to finance the public sector and the cost of credit.
A year ago, the forecast was better, but keeping expectations high for the Selic in the coming years. In January 2021, DIs started from 11.975% in 2023 and remained practically stable until reaching 11.36% in 2031. This difference of more than 1 percentage point makes it clear how the market’s perception of risk has increased in relation to Brazil in recent months.
/ CNN
tax risk
In an interview with CNN, Gabriel Leal de Barros, chief economist at Ryo Asset, said that fiscal policy is Brazil’s main risk factor. According to him, only the presentation of a new sustainable rule for controlling expenses can promote a drop in future rates.
“The composition [do arcabouço fiscal] it is very important, there is no point in presenting measures only on the revenue side to increase collection. Cost cutting, which is a more structural adjustment of accounts, needs to be present. Unfortunately, until now we have not seen this provision and that is why rates have risen, but we know that there is a lot of room to reduce expenses”, said the economist at Ryo Asset.
Barros calculates that it is possible to promote a cut of more than R$ 700 billion in ten years with the administrative reform and merger of fiscal policies. “There is a lot of opportunity for tax savings in these two measures, it would be possible to use resources more efficiently”, points out Leal de Barros.
Source: CNN Brasil
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