Brazil Analysts Boost Selic Forecast First Time Since August

Analysts covering Brazil’s economy raised their forecast for the 2013 year-end benchmark rate for the first time since August, as accelerating inflation boosts pressure on the central bank to increase borrowing costs.

Brazil’s Selic rate at year-end will be 8 percent, according to the median estimate in a central bank survey of about 100 analysts published today. Analysts had forecast 7.25 percent for the previous 17 weeks and had not raised their prediction since the survey taken Aug. 31. The Selic at year-end 2014 will be 8.25 percent, the survey showed, unchanged from the previous week.

President Dilma Rousseff’s government has cut taxes on consumer goods and electricity, allowed the real to strengthen the most among major currencies this year and held the Selic at a record low in efforts to spark economic activity and cool inflation. While Brazil saw the slowest growth among major emerging markets in 2012, government policies have stoked eight straight months of higher-than-forecast inflation. In a March 6 statement, the central bank removed a plan to keep interest rates stable for a “sufficiently prolonged” period, prompting traders to increase bets on a Selic rise in April.

“The change in central bank language and the release of inflation numbers consolidated the view of a rate increase,” Jose Francisco De Lima Goncalves, chief economist at Banco Fator SA, said in a telephone interview from Sao Paulo. “But I have doubts on the effectiveness of rate increases in this scenario.”

Under Control

Annualized inflation in February increased for the eighth straight month, jumping to 6.31 percent from 6.15 percent the month prior, the national statistics agency said on March 8. Inflation is under control and will reach the midpoint of the central bank’s target in an “adequate” period, Deputy Finance Minister Nelson Barbosa said on March 8. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Economists in the survey forecast 2013 inflation will accelerate to 5.82 percent, their highest prediction ever for this year and up from 5.70 percent the previous week. They held their forecast for inflation next year at 5.50 percent.

Brazil’s industrial production increased 2.5 percent in January, the fastest pace since March 2010, the national statistics agency said last week, signaling a possible economic rebound.

Growth in the world’s second-biggest emerging market will reach 3 percent to 4 percent this year, Finance Minister Guido Mantega said on March 1. Brazil grew 2.7 percent in 2011 and 7.5 percent in 2010. Economists in the survey raised their 2013 growth forecast to 3.10 percent from 3.09 percent the previous week.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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