Brazil’s central bank (CB) raised its 2019 economic growth forecast slightly to 0.9%, adding that while the pace of expansion should accelerate next year, the outlook remains tinged with a “high degree of uncertainty”.

The central bank’s latest Quarterly Inflation Report also showed that policymakers expect Brazil’s trade surplus to narrow and the current account deficit to widen next year, against a backdrop of low inflation, which should allow for even lower interest rates.

“The economy’s performance in the second quarter of 2019 led to raising the central growth projection for the year from 0.8% to 0.9%. For 2020, still with a high degree of uncertainty, growth of 1.8% is forecast,” the report said.

Brazil’s economy grew by 0.4% in the April-June period, twice as fast as economists had expected and a solid rebound after contracting in the first quarter. Growth will be “slow” in the third quarter but will pick up later this year, the report said.

Using market-based consensus interest rate and exchange rate forecasts, the central bank said inflation is likely to remain well-contained at around 3.3% this year and 3.6% next year. That’s significantly below the central bank’s official targets of 4.25% and 4.00%, respectively.

“The committee believes that the consolidation of a benign scenario for prospective inflation should allow for further adjustment in the degree of stimulus,” the report said, referring to the bank’s rate-setting committee known as ‘Copom’.

Copom last week lowered its benchmark Selic rate by 50 basis points to a new low of 5.50%. Financial markets are discounting further easing, with a growing number of economists predicting the Selic will go below 5.00%.

The central bank also tweaked its forecasts for Brazil’s international trade and investment flows.

It lowered its 2019 trade surplus forecast to $43 billion from $46 billion in its previous Quarterly outlook, and that is expected to narrow further next year to $41 billion. Brazil’s current account deficit this year is expected to widen to $36.3 billion, or 2.0% of gross domestic product, from an earlier forecast of $19.3 billion, or 1.0% of GDP, owing to statistical revisions and updated forecasts of financial flows.

Meanwhile, Brazil plans to introduce a 750,000-tonne tariff-free quota for wheat imports from countries outside of the South American Mercosur trade bloc in November, a government official said on Monday.

Flavio Bettarello, the agriculture ministry’s assistant secretary for trade and foreign relations, told an industry conference that enforcing the new tariff-free quota could help Brazil add new suppliers, including the United States and Russia.

The government is still pondering how to implement the quota in November, he told Reuters on the sidelines of the conference, explaining that it could be introduced via an order from the Special Secretariat for Foreign Trade and International Affairs (Secint) or from the Executive Secretariat of Foreign Trade (Camex).

The Brazilian millers’ association Abitrigo welcomed the new quota, which was announced as part of a series of measures to open up Brazil’s economy and increase the country’s share of global agricultural trade.

“Millers require we are open to world markets to get the best wheat at the best cost possible,” Eduardo Assencio, Abitrigo general superintendent, said on the sidelines of the conference.

Brazil currently levies a 10% tariff on all wheat imports from outside Mercosur, which also includes Argentina, Paraguay and Uruguay.

Reuters