WORLD
Brazil's interest rates will probably be cut sharply this year, the inflation target reduced and a pension overhaul approved even if a corruption scandal topples President Michel Temer, as is widely expected, a Reuters poll showed on Friday.
Brazil's interest rates will probably be cut sharply this year, the inflation target reduced and a pension overhaul approved even if a corruption scandal topples President Michel Temer, as is widely expected, a Reuters poll showed on Friday.
Only two of 30 analysts surveyed between May 24-26 saw Temer finishing his term in 2018 after a billionaire businessman accused the president last week of taking millions in bribes.
Still, according to most of 38 forecasts in the poll, the central bank is likely to cut its benchmark lending rate by 100 basis points on May 31, to 10.25 percent, and continue reducing it until it reaches 8.5 percent by December.
Although the crisis dampened expectations the central bank could cut rates at an even faster rate, the monetary policy scenario remains the same as in early April, when Temer still enjoyed solid congressional support and seemed a safe bet to serve his full term.
Brazil's second presidential crisis in little over a year is also unlikely to discourage policymakers from reducing the inflation target for the first time in more than a decade. Eighteen of 29 economists expected the goal to be reduced from 4.5 percent for 2019, with analysts split over a symbolic cut to 4.25 percent or a more aggressive move to 4.0 or 3.5 percent.
Analysts participated on condition of anonymity because most are not allowed to make political forecasts publicly.
NO ALTERNATIVE AGENDA
Temer, an experienced politician who previously chaired the country's biggest party, took over the presidency a year ago after his running mate Dilma Rousseff was removed from office on charges she doctored budget figures.
Even with his approval rating at 5 percent, Temer has refused to resign. He could be ousted by the top electoral court next month on charges of illegal campaign financing in 2014.
Confidence that Brazil's economic policies will remain on track have grown after remarks by Finance Minister Henrique Meirelles and lawmakers suggesting there is no alternative agenda to lift the country out of its worst recession in history.
Temer's replacement would be picked by Congress up to 30 days after his exit and most candidates being speculated by his main allies come from within the coalition - including Meirelles himself, who could also stay as Finance minister.
Markets initially tumbled on the scandal but have stabilized in recent days. Yields on interest rate futures imply a 78-percent chance of a 100-basis-point cut on May 31.
The most vulnerable point of Temer's agenda seems to be his proposal to overhaul social security rules and make Brazilians work for longer to help plug a gaping budget deficit.
The so-called pension reform needs a supermajority in both houses of Congress and government leaders reckoned they still lacked the necessary votes to pass it.
Still, a small majority of economists in the poll, 16 out of 31, expected the pension overhaul would be approved this year.
"Chances of approval are lower but still exist given Meirelles' lobby in Congress and his attempt to frame this issue considering technical arguments," an economist said.
(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)
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