Brazil Analysts See Higher Selic Rate on Worse Inflation Outlook

Brazil analysts raised their outlook for the benchmark rate at the end of 2016, as their inflation expectations near the upper limit of the central bank’s target range.

Brazil’s Selic will be 13.25 percent at the end of next year, according to the Nov. 6 central bank survey of about 100 analysts. That’s up from the previous week’s estimate of 13 percent, and 12 percent at the start of September. Inflation will reach 6.47 percent next year, just a shade below the 6.5 percent ceiling of the target range, according to the survey.

A weaker currency coupled with the government’s inability to rein in the budget deficit has fueled the inflation outlook. Analysts are reviewing their consumer price forecasts in the wake of the government and central bank both abandoning their initial fiscal and monetary policy targets.

The government said last month it is no longer targeting a primary surplus in 2015, and now foresees a deficit of 51.8 billion reais ($13.7 billion). Instead of bringing inflation to its 4.5 percent target by the end of next year, the central bank now says it plans to reach the goal in 2017.

Policy makers kept Brazil’s key rate at 14.25 percent for a second straight meeting last month. Whereas economists surveyed still expect lower rates next year, traders are betting the monetary authority will be forced to resume rate increases this month and raise it by at least 175 basis points by the end of 2016, according to data compiled by Bloomberg.

Brazil’s inflation will accelerate to 9.99 percent in 2015 from 9.93 percent in October, according to the analysts surveyed by the central bank. They also see the economy contracting 3.1 percent this year.

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