Brazil analysts lifted their 2016 year-end benchmark interest rate forecast for the sixth consecutive week, as the central bank reaffirms its commitment to slow inflation to target.
Policy makers will increase borrowing costs to 15.25 percent next year, compared to the previous week’s forecast of 14.75 percent, according to the weekly central bank survey of about 100 economists. Analysts expect inflation to reach 6.86 percent at the end of 2016, above the 6.5 percent upper limit of the central bank’s target range.
President Dilma Rousseff’s administration is caught between the fastest annual inflation in 12 years and prospects of two consecutive years of recession. Central bank estimates released last week showed consumer prices above target through at least 2017 even with the key rate currently at a nine-year high. Impeachment proceedings and an expanding corruption scandal have also stalled the passage of austerity policies aimed at bolstering public accounts and restoring growth.
Central bank director Altamir Lopes said on Dec. 23 the institution will adopt necessary policies to bring inflation to its 4.5 percent target in 2017. Rising political and economic uncertainties threaten to keep consumer price increases above its goal for longer than initially expected, the central bank said in the quarterly inflation report released on the same day.
In its Nov. 24-25 monetary policy meeting, the central bank held the Selic rate at 14.25 percent -- the highest level since 2006. Policy makers currently target annual inflation at 4.5 percent, with a tolerance band of plus or minus two percentage points. For 2017, the tolerance band will be plus or minus 1.5 percentage points.
Analysts forecast the economy will contract by 2.81 percent next year, versus a 2.80 percent drop in last week’s survey. The economy is on track to contract 3.70 percent this year, they predict.