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Brazil Economists Raise 2014 Selic Forecast to Highest All Year

Brazil economists raised their 2014 benchmark interest rate forecast to the highest all year, as policy makers work to slow inflation that has curbed consumption and confidence in the world’s second-biggest emerging market.

Brazil’s central bank will lift the Selic to 9.50 percent next year, compared with the previous week’s forecast of 9.25 percent, according to a July 12 central bank survey of about 100 analysts published today. Economists maintained their 2013 year-end Selic forecast at 9.25 percent.

President Dilma Rousseff’s administration is facing renewed pressure to tame inflation, after rising prices helped spark the largest street protests in decades last month. Policy makers on July 10 raised the benchmark interest rate by 50 basis points for the second straight meeting after inflation in June reached a 20-month high. Price increases running above the central bank’s target range have slowed consumption and industrial production, prompting central bankers to signal they will continue the world’s biggest tightening cycle.

Swap rates on the contract due in January 2015 fell one basis point, or 0.01 percentage point, to 9.61 percent at 9:04 a.m. local time. The real weakened by 0.1 percent to 2.2701 per U.S. dollar.

Consumer prices rose 6.70 percent in June from a year earlier, the fastest pace since October 2011, the national statistics agency said on July 5. Higher costs for food, fuel and public tariffs have worsened consumer and business sentiment, the central bank said in its quarterly inflation report published June 27. Policy makers target inflation at 4.5 percent plus or minus two percentage points.

Street Riots

Protesters took to the streets in early June to oppose a bus fare increase in Sao Paulo, with discontent spreading to other cities including Porto Alegre, Rio de Janeiro and Brasilia. Rousseff’s approval rating fell to 30 percent, down from 57 percent before protests started and a high of 65 percent in March, according to a survey by Datafolha published June 29.

Retail sales in May were unchanged from the month prior, the national statistics agency said on July 11. Industrial production in May fell by 2 percent, the second contraction in four months.

Brazil’s gross domestic product expanded 0.55 percent in the first quarter, less than the 0.9 percent median forecast in a Bloomberg survey. The economy grew 0.9 percent last year, the worst performance since it contracted in 2009.

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