Brazils Finance Ministry cuts 2023 GDP forecast to 1.61%

BRASILIA (Reuters) – Brazils Finance Ministry reduced its estimates for economic growth this year, mentioning the impact of higher basic interest rates on activity and credit, as well as reduced liquidity in the United States.

The Ministrys Secretariat of Economic Policy (SPE) now projects a gross domestic product expansion of 1.61%, down from 2.1% in November. The projection for next year was also reduced to 2.34% from 2.5%.

In a statement, the secretariat said previous estimates, made under former President Jair Bolsonaros government, “minimized the contractionary effects of monetary policy on the economic cycle and credit market.”

New leftist President Luiz Inacio Lula da Silva has consistently criticized the level of the central banks benchmark interest rate, which has been held steady at a six-year high since September, arguing that it harms activity growth and threatens a credit crunch.

The secretariat also now sees higher inflation, at 5.31% in 2023 and 3.52% in 2024, up from 4.6% and 3%, respectively.

The official inflation target is 3.25% this year and 3% in 2024, with a margin of plus or minus 1.5 percentage point.

(Reporting by Marcela Ayres; Editing by Chris Reese and Diane Craft)