The country’s fiscal situation has worsened for 93% of economists consulted by the BC

The country’s fiscal situation worsened between June and August for 93% of economists consulted in the questionnaire sent by the Central Bank to the market on the eve of the last Copom (Monetary Policy Committee) meeting. The result was released by the monetary authority on the morning of this Wednesday (10).

Among the 94 respondents’ responses, only 4% considered that there were no relevant changes in the fiscal scenario in the period, while 3% said that the situation had improved.

The answers to the questionnaire sent to financial market analysts on July 22 served as input for the committee’s decision on the basic interest rate (Selic), which reached 13.75% per year after a rise of 0.5 percentage point on the 3rd of August.

In July, the Jair Bolsonaro (PL) government approved a PEC (proposed amendment to the Constitution) that released boosted social benefits to the population amid the presidential race.

Last Tuesday (9), the payment of the Auxílio Brasil of R$ 600, the gas voucher of R$ 110 per family every two months, in addition to the first two installments, totaling R$ 2,000, to self-employed truck drivers began. . The voucher to taxi drivers, in turn, will be released from next week, on August 16th.

The constitutional amendment, at an estimated cost of BRL 41.25 billion, authorized the expansion of payments above the spending ceiling, overruling tax legislation a few months before the elections.

At the end of June, at a time of high inflation, President Bolsonaro also sanctioned the law that sets a ceiling of 17% to 18% for ICMS rates on fuel, electricity, transport and telecommunications.

The text also includes a reduction to zero of the rates of Cide (Contribution for Intervention in the Economic Domain) and PIS/Cofins levied on gasoline and ethanol until December 31 of this year.

After the tax cuts approved by Congress, the average price of gasoline started a sequence of drops at the pumps in recent weeks, falling below R$ 6 per liter. In addition, Petrobras reduced the value of fuel at refineries twice.

In the pre-Copom questionnaire, the median of economists’ projections for the potential impact of the various economic measures of a tax nature implemented is a reduction in the IPCA (Broad Consumer Price Index) by 2.5 percentage points in 2022 (94 responses) and an increase of 0.7 point in 2023 (92 responses).

According to the latest Focus survey published before the BC collegiate meeting, IPCA estimates for 2022 and 2023 were at 7.15% and 5.33%, respectively.

In the BC reference scenario, inflation projections fell from 8.8% to 6.8% this year and rose from 4% to 4.6% in 2023. For 2024, the municipality maintained its forecast of 2.7% .

In the minutes of the meeting, the BC stressed that fiscal policy can affect inflation through several channels, including its effect on activity, asset prices and inflation expectations.

“The committee assesses that temporary income support policies should stimulate aggregate demand and that the prolongation of such policies could raise country risk premiums and inflation expectations as they put pressure on aggregate demand and worsen the fiscal trajectory” , said.

The BC also highlighted that it is still not possible to observe much of the contractionary effect of the “timely” cycle of monetary tightening, as well as its reflection on current inflation. According to Copom, these impacts should be more evident in the activity indicators for the second half of the year.

“But the committee anticipates that measures to support aggregate demand, which will be implemented in the short term, should hinder a more accurate assessment of the stage of the economic cycle and the impacts of monetary policy”, he pondered.