SAO PAULO (Reuters) – Brazilian financial institutions see greater fiscal risks and a worsening economic cycle over the next three years in Latin America’s largest economy, according to a central bank survey released on Thursday.
Of the 91 financial institutions surveyed, 52 cited the fiscal picture as the main risk to financial stability, up from 42 in the last quarterly survey in November.
The data underscores lingering market concerns over Brazil’s mounting public debt, driven by high interest costs and rising mandatory expenditures, which have grown under leftist President Luiz Inacio Lula da Silva.
Financial institutions are less willing to take risks and have a worsening assessment of asset prices and access to funding and liquidity, the survey showed. Globally, the risks for the next three years are mainly associated with U.S. economic policy and geopolitical conflicts.
The research also showed increased concern about default risks and activity.
More than 50% of respondents said the economy is in contraction, up from just over 25% in the previous survey.
The central bank has said it will closely monitor economic data over time to confirm any signs of slowing activity.
Stronger-than-expected growth and a tight labor market have increased inflationary pressures, prompting policymakers to raise interest rates by 275 basis points since September to 13.25%.
The central bank has already signaled another 100 basis-point hike at its next policy meeting in March.
(Reporting by Isabel Teles; Editing by Richard Chang)
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