Weekly Report 123
✅ Federal revenue surprises with IOF collections and government eases budget freeze. Federal revenue totaled BRL 234.5 billion in June, marking a real increase of 6.6 percent compared to the same month last year. The result was primarily driven by a temporary hike in the IOF tax, which generated BRL 8.02 billion in revenue for the month, reflecting legislative changes that broadened taxation on credit and foreign exchange operations, especially for corporations. On the fiscal front, the Bi-Monthly Revenue and Expenditure Report combined a smaller-than-expected cut in expenditures with continued heavy reliance on one-off revenues. While the latest revenue figures help ease pressure on the government’s fiscal target, the adopted strategy remains heavily focused on boosting revenues, with limited progress in implementing structural spending controls.
✅ Inflation data do not add pressure on the Central Bank. The IPCA-15 inflation reading for July posted a 0.33 percent month-over-month increase, slightly above the market median forecast (0.31 percent) but just below our projection (0.34 percent). Among the key highlights, core services inflation remained stable despite internal fluctuations, with the average of core measures broadly in line with market expectations. From a monetary policy perspective, the data do not alter our view that the Central Bank will hold the Selic rate steady at 15.0 percent in the upcoming meeting. This reflects recent Copom communication indicating a preference for keeping interest rates elevated for an extended period, until there is clear convergence of inflation toward the target.
✅ On the external front, ECB holds rates steady and Trump negotiates tariffs with the European Union. The European Central Bank kept its policy rate unchanged at 2.0 percent following eight consecutive cuts, in line with market expectations. The statement emphasized that monetary policy is well-positioned but reaffirmed a data-dependent approach given the elevated uncertainty stemming from trade and geopolitical tensions. In this environment, news of a potential trade agreement between the United States and the European Union was well received by markets, indicating the adoption of reciprocal 15 percent tariffs on European imports. Regarding Brazil, it is worth noting that Trump reiterated this week that “some countries we’re not getting along with will pay a 50 percent tariff,” indirectly referring to Brazil.
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