The Banco Central decided, at the meeting that closed on 18 September, a new cut of 0.5% of the discount rate, which now stands at 5.5% per annum. Before the end of the year, if inflation were to continue under control, there could be an additional 0,5% discount.

The pension reform is in the final phase of approval by the Senate, with alterations to the text approved in the Chamber of Deputies that make it lose part of the impact on public accounts. After the various alterations, the expected economy in 10 years has decreased by 1/3, going from R$ 1200 to R$800 billions. To prevent its approval, the auction for the exploitation of new pre-sal oil reservoirs (scheduled for early November), which must generate revenues of around R $ 106 billion: the distribution of this huge amount of resources between the Federation, States and Municipalities is creating conflicts between the various spheres of government and also have repercussions on the pension reform.

Negative data about industrial production (which constitutes about 11% of Brazilian GDP), which in the last 12 months (September 2018-August 2019) fell by 1.7% compared to the previous 12 months. To weigh more on this disappointing performance, the Argentine crisis, the Brumadinho disaster and the structural problems of the sector (low productivity, tax complexity, average obsolete industrial park and low investments).

The tax reform is not yet defined but has already created an illustrious victim, the secretary of the Receita Federal, Marcos Cintra, resigned from Paulo Guedes on September, 11. Defender of the return of a tax on banking transactions (on the model of the CPMF, abolished in 2007) directly clashed with the president Bolsonaro, who did not like some of his positions.

Among the most important political events, I would like to highlight the September 24 speech by Jair Bolsonaro to the UN, which generated abundant controversy in terms of tone and content, also regarding the delicate issue of fires and deforestation and the opening of the Synod on the Amazon, occurred on September,6 in the Vatican. With the eyes of the world on Amazonia, and not for the colonial motifs imagined by Bolsonaro, it is hoped that the debate will lead the Brazilian government to more conciliatory positions that favor the preservation of the environment.

Let’s see the update of some economic indicators.

GDP (Value added at market prices)

  2013 2014 2015 2016 2017 2018 2019
GDP – real growth (%) 3,0% 0,5% -3,5% -3,3% 1,0% 1,1% 0,87%

The 2019 GDP growth forecast is still stable, estimated at +0.87%. However, this is a very modest result, considering global average growth and that of developing countries. The scenario for 2020 is already beginning to be defined, for which economists are expecting 2% growth. The reduction of the discount rate to historic lows should favor the economy, but more investment is needed by the private sector (which has not yet recovered confidence) and the public sector.


Inflation and real/dollar exchange 

  2013 2014 2015 2016 2017 2018 2019
IPCA (IBGE – %) 5,90% 6,40% 10,7% 6,29% 2,95% 3,69% 3,42%

Inflation estimates are still down, now below the lower limit of Banco Central’s goal (3.5%). The appreciation of the dollar, with the consequent increase in the prices of imported goods, is not having a significant inflationary impact. A further reduction in the discount rate is therefore likely before the end of 2019.



2013 2014 2015 2016 2017 2018 2019
Exchange rate R$/US$ (end of the period) 2,34 2,66 3,90 3,25 3,25 3,75 4,00

The dollar is quoted today at R $ 4.10 (a month ago it was at 4.12). The market expects the dollar to close on the 2019 listed R$ 4.00, the highest value in recent years. One of the promises of the Bolsonaro government, that of a strong currency, has not been maintained and this increases the caution of foreign investors, who make their accounts in dollars or euros. Brazilian assets are – in dollars or euros – often cheap, but the volatility of the real makes it difficult to clearly plan the potential profitability of an investment.

The euro is now listed as R$ 4.51 (a month ago it was at R$ 4.54).


Interest rate

  2013 2014 2015 2016 2017 2018 2019
Nominal Interest rate (end of the períod) 10,00% 11,80% 14,87% 13,75% 7,00% 6,50% 4,75%
Real interest (deflactor: IPCA) 2,10% 4,20% 2,60% 6,91% 4,05% 2,81% 1,33%

The year-end forecast for the discount rate (SELIC) is still down, going from 5.00% to 4.75%, which would be a further historical low. With inflation falling, the real interest rate would remain at 1.33%, a value that is also unpublished for the Brazilian parameters.

However, the cost of credit is still skyrocketing, one of the highest in the world. To learn more, I refer to my interview with the Italian Community magazine:


The Brazilian stock market (Bovespa)

The stock market remained at the same levels as at the beginning of September, at around 101/102 thousand points. Throughout the month the Bovespa index has fluctuated between 101 thousand and 105 thousand points, especially sensitive to the change in Petrobras prices, due to the crisis caused by the attack on the Saudi refinery on 14 September.