Brazil’s central bank will wait for analysts to cut their inflation outlook to 4.5 percent before considering whether to reverse monetary policy, a person close to the government’s economic team said.
Forecasts that the central bank will reduce the benchmark interest rate by early next year are premature, said the person, who asked not to be named because the information isn’t public. Analysts surveyed by the central bank predict consumer prices will rise 8.26 percent this year and 5.60 percent in 2016.
Brazil has raised benchmark interest rates five times since President Dilma Rousseff was re-elected in October and has pursued the most hawkish monetary policy among the world’s largest economies this year. Analysts are more pessimistic than the central bank on where inflation is headed in part because they believe service-sector prices will remain elevated, according to the person.
Policy makers earlier Thursday signaled in the minutes to their April 28-29 rate decision that they will continue to raise benchmark borrowing costs, known as the Selic, from the current level of 13.25 percent.
“The gains achieved in the fight against inflation -- exemplified by benign signs stemming from medium and long-term outlook indicators -- aren’t yet sufficient,” policy makers said in the minutes.
Traders reinforced bets on Thursday that the central bank will raise the key rate in June for a sixth straight meeting to as high as 13.75 percent.
Swap rates maturing in January 2017, the most traded in Sao Paulo, rose 13 basis points, or 0.13 percentage point, to 13.63 percent at 4:10 p.m. local time. The real rose 0.5 percent to 3.0202 per U.S. dollar.
“This is very relevant and comes in addition to the minutes,” Luciano Rostagno, chief strategist at Banco Mizuho do Brasil, said from Sao Paulo. “In the minutes, they wanted to show that they still have some more hiking to do in the Selic. Now they are giving a parameter of when they can start the next step, which would be cutting interest rates to aid activity that is deteriorating and should deteriorate further.”
Analysts predict the central bank will start cutting interest rates in January to revive economic growth, a central bank survey published this week showed.
They also forecast central bank President Alexandre Tombini will fail to bring inflation to the 4.5 percent target by the end of next year.
Monthly inflation of 1.32 percent in March will start slowing soon, the person said. Consumer prices rose 0.75 percent in April, according to the median estimate in a Bloomberg survey of 39 analysts. The national statistics agency is scheduled to report the figure Friday.
“Probably our interest rates will decrease again in two, three years,” Carlos Takahashi, chief executive officer of BB DTVM, the money-management unit of Banco do Brasil SA, said in an interview in Sao Paulo. “It’s impossible for it to stay at these levels. For this reason, I do believe that all the measures the central bank has been adopting will take effect and then you’ll have more civilized levels of interest rates.”