Brazil analysts raised their 2016 forecast for the benchmark Selic rate as the central bank vows to slow inflation to target by the end of next year.
Analysts increased their forecast for the Selic rate at end-2016 to 12.25 percent from 12.06 percent the prior week, according to the July 10 central bank survey of about 100 analysts published Monday. That’s the second straight increase of analysts’ median forecast. They also reduced their 2016 inflation prediction for the second time, to 5.44 percent from 5.45 percent.
Brazil’s inflation is running at almost double the target as the government raises regulated prices and a weaker currency fuels the price of imports. The central bank, which raised the key rate in the past six meetings, will continue to lift borrowing costs even as the economy heads to its deepest recession in 25 years.
The inflation outlook for 2016 would need to fall below the 4.5 percent target and stick to the goal for the following years to create conditions for monetary easing, a member of the government’s economic team with knowledge of monetary policy said July 1. That being the case, policy makers may take longer to start cutting interest rates than analysts predict because they want to make absolutely sure that inflation has been tamed before making their move.
Policy makers have boosted the benchmark interest rate to 13.75 percent, and analysts forecast it will be lifted to 14.5 percent by year-end.
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