👀 All eyes on the Central Bank

Good morning! Today, a tensely awaited Central Bank policy announcement. Brazil has a problem with undetermined deaths. And the country’s continuing millionaire exodus.

If you like our work and want to give us an extra boost, you can fill up our reporters’ coffee mugs. Supporters get exclusive perks! Find out more.

Central Bank to announce policy decision amid political tension

The Monetary Policy Committee of the Brazilian Central Bank is expected this evening to keep the country’s benchmark interest rate at 10.5 percent. While that perception is nearly a consensus within the market, investors will be looking at whether the decision is unanimous or split within the committee itself.

Rate watch. In May, the Central Bank slowed down the pace of monetary easing, with a rate cut of 0.25 points that interrupted the previous pace of 0.5-point cuts. 

• But what raised eyebrows was the fact that the decision was split between a five-vote majority from Central Bank board members appointed by the former Jair Bolsonaro administration, and a four-vote minority named by the current Luiz Inácio Lula da Silva government — all of whom called for a 0.5-point cut instead. 

• Even if unintended, the split was treated as being political. It also increases uncertainty around the future of Brazil’s monetary policy. Next year, seven of the nine Central Bank board members will be made up of Lula-appointees, and the bank will be expected to become far more dovish than it has been. 

Backdrop. Meanwhile, tensions between the government and Central Bank chairman Roberto Campos Neto have reached new highs. The president bashed Mr. Campos Neto in an interview yesterday, saying he is working “against the country.” Lula’s Workers’ Party is expected to file a lawsuit today asking the courts to put a gag order on Mr. Campos Neto. 

• The move comes after Mr. Campos Neto accepted honors at the São Paulo State Congress, when he defended more autonomy to the bank. He then dined with Governor Tarcísio de Freitas — a potential challenger of Lula’s in 2026.

• Rumor has it that Mr. Campos Neto was invited to be Mr. Freitas’s finance minister pick, or that the chairman himself could enter the political arena.

 Why it matters. The political backdrop can only be pernicious to the monetary policy discussion. In recent days, Brazil’s currency has crashed, the stock market is on a downward spiral, and the yield curve keeps mounting.  

Outlook. The median market forecasts for the year-end benchmark interest rate and inflation index have worsened, as has the projection for Brazil’s economic growth in 2024. Investors have also slightly lowered their expectations for the GDP, from a growth rate of 2.09 to 2.08 percent.

Brazil’s problem of undetermined deaths

The Institute for Applied Economic Research (Ipea) on Tuesday published its latest Violence Atlas, with findings on public safety in Brazil. The data comprises the 2012-2022 period and shows a sharp, 25 percent drop in the country’s murder rate across that ten-year span: decreasing from 28.9 to 21.7 cases per 100,000 residents.

Yes, but … According to the official records, Brazil had 46,049 murders in 2022. But the Ipea report claims that the number is widely underreported. Researchers estimate the real figures at 52,391 that year, almost 13 percent higher.

• As a matter of fact, Brazil recorded 131,562 “undetermined violent deaths” between 2012 and 2022. These undetermined cases have seen a spurt since 2018, precisely when the number of murders began to decrease.

• Daniel Cerqueira, one of the Violence Atlas’s coordinators, estimated that almost 52,000 of these “undetermined violent deaths” between 2012 and 2022 were, in fact, homicides. “To understand the magnitude of the problem, that’s more than the entire 2022 murder tally,” Mr. Cerqueira says.

 Why it matters. Following Mr. Cerqueira’s estimates and considering a proportion of these unregistered deaths as murders would massively change public security indicators in many Brazilian states. The most flagrant case is that of São Paulo, the country’s most populated and wealthiest state: its murder rate would jump from 6.8 to 12 per 100,000 people.

Impact. Urban violence is a scourge on Brazil, deterring foreign investment (read more below) and serving as an important reason why international tourists do not flock to Brazil (at least not to its full potential as a picture-perfect country). 

Brazil’s millionaire exodus continues

Brazil is on track to lose 800 millionaires this year, more than any Latin American country and the sixth-most worldwide. The estimate, by the Henley Private Wealth Migration Report, shows that the country continues to become less and less attractive for the super-rich; in 2022 and 2023, Brazil lost an estimated 3,000 millionaires.

 Why it matters. Migration advisory firm Henley & Partners, which authors the study, says “migrating millionaires are a vital source of forex revenue as they tend to bring their money with them when they move to a new country.”

Trend. Some factors may be influencing the continuous outflow of millionaires. Henley explains that low taxation is one of the criteria sought by the wealthy when choosing a place of residence — alongside political stability, personal freedom, and elements contributing to quality of life such as public safety issues.

• Brazil’s tax system is currently very regressive — comprising low income tax rates and high taxation on consumption. But the government wishes to address that, and the Lula administration has often banged the drum of creating wealth taxes.

• Moreover, the Finance Ministry has defended creating levies on dividends, which are currently tax-free.

Rich people’s problems. Living a millionaire lifestyle is more expensive in São Paulo (Brazil’s financial capital) than in Miami or Paris, according to the 2023 Julius Baer’s Global Wealth And Lifestyle Report. Indeed, the Americas are now the world’s second-most expensive region for the affluent population — overtaking Europe, the Middle East, and Africa.

Outlook. A January report on wealth by Henley & Partners shows that none of the top ten wealthiest cities in the BRICS group of nations are in Brazil, nor are any of the cities mentioned as future wealth hubs. These are almost exclusively in Asia and the Middle East.

Quick catch-up

New data from pollster Datafolha shows a slight improvement in President Lula’s popularity — his approval was up by a percentage point since March, while disapproval was down by the same margin. See how Lula compares with past presidents.

In a bid for more budgetary freedom, the government could revive a mechanism known as “federal revenue decoupling,” which allows the administration to freely move up to 20 percent of the money constitutionally earmarked for healthcare, education, and social security spending.

Electoral courts have settled how much each political party will receive to finance their campaigns during the 2024 municipal elections. Parties get a combined BRL 5 billion, to be split according to the size of House benches — Jair Bolsonaro’s Liberal Party and Lula’s Workers’ Party will get the biggest share: 17.9 and 12.5 percent, respectively.

The Supreme Court decided that a congressman, a Rio de Janeiro accounts court member, and Rio’s former police chief will stand trial for their alleged role in the 2018 Marielle Franco murder. They are accused of ordering her assassination and helping the hitmen.

Correction: A previous version of this newsletter incorrectly stated that Marielle Franco was murdered in 2014. The correct year is 2018. This information has been updated.

The post 👀 All eyes on the Central Bank appeared first on The Brazilian Report.