Brazil Economists Increase Selic Outlook to Highest Since 2006

Brazil analysts raised their forecast for the benchmark rate at the end of this year as Latin America’s largest economy faces above-target inflation and slides into recession.

Analysts raised their forecast for the Selic rate at year-end by a quarter-point to 14.5 percent, according to the June 26 central bank survey of about 100 analysts published Monday. That would be the highest since 2006. Even with higher forecasted borrowing costs, analysts raised their 2015 inflation call to 9 percent and and held their outlook for next year at 5.5 percent.

Brazil’s economy contracted in the first quarter as the government raises taxes and reduces spending. Tighter monetary policy has yet to bring about slower inflation, which remains more than two percentage points above the ceiling of the target range.

The Brazil analysts reduced their forecast for gross domestic product to negative 1.49 percent, from negative 1.45 percent in last week’s survey. They predicted GDP will rebound in 2016, growing 0.5 percent, down from the 0.7 percent forecast last week.

Policy makers have boosted the benchmark interest rate in six straight meetings, to 13.75 percent. Inflation in the 12 months through mid-June accelerated to 8.8 percent. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

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