Brazil Economists Forecast Higher Key Rate and Weaker Real

Brazil economists forecast a higher benchmark interest rate in 2015 and a weaker real this year and next, as policy makers continue efforts to slow inflation to their 4.5 percent target.

Brazil’s central bank will lift the Selic to 11.88 percent next year, compared with the previous week’s forecast of 11.50 percent, according to the Jan. 31 central bank survey of about 100 analysts published today. The real will weaken to 2.47 per U.S. dollar this December and 2.51 at the end of 2015, compared with last week’s forecast of 2.45 and 2.50, respectively.

President Dilma Rousseff’s government is working to lift the world’s second-biggest emerging market from a period of slow growth and high inflation. The central bank’s seven straight key rate increases have been undermined by a weaker real that touched a five-month low last week. Waning confidence coupled with above-target price increases have hampered demand even as unemployment fell to a record last month.

Brazil’s central bank on Jan. 15 lifted the benchmark Selic by 50 basis points to 10.50 percent. In the minutes to their Jan. 14-15 monetary policy meeting, policy makers said it was “appropriate” to maintain the current pace of interest rate increases.

Brazil’s monetary policy is working, central bank President Alexandre Tombini said in London on Jan. 27. Inflation expectations will fall as the monetary policy already implemented affects consumer price increases, he said.

Slower Inflation

Inflation in the 12 months through January slowed to 5.66 percent from 5.91 percent the month prior and 6.70 percent in June, according to the median estimate from 29 economists surveyed by Bloomberg. The national statistics agency will publish the official inflation figure on Feb. 7.

Economic activity in November unexpectedly contracted as industrial production in the same month fell. Brazil’s economy contracted in the third quarter by the most since 2009 on slowing investments.

Consumer confidence as measured by the Fundacao Getulio Vargas dropped in January to the lowest level since June 2009. Pacific Investment Management Co LLC wrote in an e-mailed report on Jan. 23 that Brazil’s government is “doubling down” on a failing policy of expansionary spending and subsidized lending from state banks to boost growth.

The world’s second-largest emerging market expanded by 1 percent last year. That’s down from 2.7 percent growth in 2011 and a 7.5 percent increase in 2010.

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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