Brazil analysts forecast deeper recessions this year and next, and remain unconvinced the central bank will slow inflation to target in 2016.
Brazil’s economy will contract by 2.26 percent in 2015 and by 0.4 percent in 2016, according to the Aug. 28 central bank survey of about 100 analysts. That is down from contractions of 2.06 percent and 0.24 percent, respectively, the prior week. They also raised their 2016 inflation forecast for the fourth straight week, to 5.51 percent.
Brazil’s economy is heading toward two consecutive years of recession, yet the central bank is signaling it won’t lower rates given inflation running at double the target. Consumer price increases are being fueled partly by the depreciation of currency, and both business and consumer confidence levels have deteriorated.
The central bank has boosted Brazil’s key rate in seven straight meetings to 14.25 percent, most recently by 50 basis points in July. While the bank has said keeping rates at that level for a prolonged period is necessary to slow inflation to target by the end of 2016, it’s also damping activity. The largest economy in Latin America entered recession in the second quarter with a 1.9 percent contraction, which followed a revised 0.7 percent decline the prior period, according to data released Aug. 28.
Brazil’s inflation in the 12 months through mid-August accelerated to 9.57 percent. Analysts in the survey forecast that prices will increase 9.28 percent this year. Inflation has been stoked by Brazil’s currency, the real, losing 26 percent against the U.S. dollar this year -- the most among 16 major currencies tracked by Bloomberg.