Brazil Economists Cut Year-end Benchmark Rate Forecast to 8.25%

Analysts covering Brazil’s economy cut their forecast for the year-end benchmark rate for the first time since November after the central bank’s split decision last week eased predictions of a steeper tightening cycle.

Brazil’s Selic rate will climb to 8.25 percent from 7.5 percent by August, and policy makers will hold borrowing costs at that level through the end of this year, according to the median estimate in a central bank survey of about 100 analysts published today. Economists the previous week had forecast a rate at 8.50 percent in August and at year-end. Brazil’s central bank on Wednesday raised the Selic rate by 25 basis points after holding borrowing costs at a record low since October.

While the world’s second-largest emerging market grew last year at the slowest pace since 2009, President Dilma Rousseff’s administration is under renewed pressure to tame inflation that breached the upper limit of the bank’s target range in March. Two bank directors voted against last week’s rate increase, as policy makers in an accompanying statement warned that domestic and international uncertainties “require that monetary policy be managed with caution.”

“This is going to be the shortest and smallest hiking cycle in modern history in Brazil,” Neil Shearing, chief emerging markets economist, said in a telephone interview from London. “The statement with this month’s decision was more dovish than what people had foreseen. That led to some tempering of expectations of very aggressive rate hikes.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell five basis points, or 0.05 percentage point, to 8.30 percent at 10:42 a.m. local time. The real fell 0.3 percent to 2.0166.

Annual inflation in March reached 6.59 percent, the fastest since November 2011. The central bank targets price increases of 4.5 percent, plus or minus two percentage points.

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