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Brazil Analysts Raise Selic Forecast for This Year and Next

Analysts covering Brazil’s economy raised their forecasts for the benchmark interest rate at year-end 2013 and 2014, as inflation near the top of the central bank’s target range puts pressure on policy makers to boost borrowing costs.

Brazil’s Selic rate will be 8.25 percent at the end of this year and 8.50 percent at year-end 2014, according to the median estimate in a central bank survey of about 100 analysts published today. Analysts had forecast 8.00 percent and 8.25 percent respectively the previous week. The central bank has held the rate at a record low 7.25 percent for the past three meetings.

President Dilma Rousseff’s government is working to revive growth that was the slowest among major emerging markets last year while trying to tame the fastest annual inflation in 14 months. Recent indicators show that measures including tax cuts for consumers and industry and electricity cost reductions may be spurring activity. In the minutes to the central bank’s March 5-6 monetary policy meeting, officials said monetary policy requires caution amid a slower-than-expected recovery and resistant inflation.

“There are no signs of inflation returning to lower levels,” Newton Rosa, chief economist at Sul America Investimentos, said in a telephone interview from Sao Paulo. “The market is adjusting its expectations for the rate hike cycle, which should start this year in April or May. In 2014, the central bank could restart increases after elections.” Brazil will hold elections for president and Congress in October of next year.

’Very Resilient’

Annualized consumer price increases in February jumped for the eighth straight month to 6.31 percent. Brazil’s inflation has remained “very resilient” and service price increases have been easing slowly, central bank President Alexandre Tombini said on March 12. The bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

Economists in the survey forecast inflation this year of 5.73 percent, down from 5.82 percent the previous week, and boosted their prediction for inflation next year to 5.54 percent from 5.50 percent.

Brazil’s retail sales rose 0.6 percent in January from the month prior, beating analysts’ forecasts of a 0.4 percent increase, the national statistics agency said on March 14. Industrial output rose 2.5 percent in January over December, also more than economists forecast.

Growth in the world’s second-biggest emerging market will reach at least 3 percent in 2013, Finance Minister Guido Mantega said on March 1. Brazil grew 0.9 percent and 2.7 percent in 2012 and 2011, respectively.

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