Brazilian Economists Raise Interest Rate, Inflation Forecasts for 2011

Brazil’s central bank will need to raise interest rates more than previously forecast in 2011, as economists see accelerating inflation next year.

Economists covering the Brazilian economy expect policy makers to raise the benchmark Selic rate to 11.75 percent by December 2011, up from a week-earlier forecast of 11.50 percent, according to a Sept. 10 central bank survey of about 100 economists published today.

Consumer prices will exceed the government’s 4.5 percent target this year and next, prompting policy makers to resume rate increases in March, the survey shows. The central bank held borrowing costs at 10.75 percent on Sept. 1, saying that rates were “adequate” to bring inflation down to its target.

“We have a credibility problem here,” said Roberto Padovani, chief strategist at WestLB said, speaking by phone from Sao Paulo. “The central bank has one scenario, the analysts have another one. The bank hasn’t been totally successful in convincing the markets.”

Padovani expects policy makers to pause at 10.75 percent in 2011, a call he says is a minority view among analysts.

Economists raised their 2011 year-end inflation forecast to 4.90 percent, up from their week-earlier forecast of 4.85 percent. The economists raised their 12-month inflation forecast to 5.06 percent from 5.03 percent, the survey found.

Stronger Real

The real strengthened to a nine-month high, rising 0.4 percent to 1.7153 per U.S. dollar at 9:30 a.m. New York time, from 1.7222 on Sept. 10. The yield on the overnight interest- rate future contract due January 2012 rose five basis points, or 0.05 percentage point, to 11.35 percent.

Concern that a government led by Dilma Rousseff, President Luiz Inacio Lula da Silva’s former Cabinet chief, may fail to restrain credit expansion and public spending is also pushing up interest rate expectations, Padovani said.

“In consequence, they’ll have to be tougher with monetary policy,” Padovani added.

Rousseff has a 23 percentage-point lead over opposition candidate and former Sao Paulo Governor Jose Serra, Rede Globo television network reported Sept. 10.

Rousseff, the candidate for Lula’s Workers’ Party, had the support of 50 percent of those surveyed, while Serra had 27 percent, and Green Party candidate Marina Silva had 11 percent, according to Globo TV.

To contact the reporters on this story: Andre Soliani in Brasilia at +55-61-3329-1605 or asoliani@bloomberg.net Matthew Bristow in Brasilia at +55-61-3329-1609 or mbristow5@bloomberg.net

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