Brazil Analysts Raise 2013 Key Rate Forecast to Highest All Year

Brazil economists raised their forecasts for the 2013 benchmark interest rate to the highest so far this year after policy makers signaled they will extend the world’s fastest tightening cycle.

Brazil’s central bank will raise the Selic to 9.75 percent this year from today’s 9 percent, compared with the previous week’s estimate of 9.50 percent, according to the Sept. 6 central bank survey of about 100 analysts published today. Economists maintained their 2014 key rate forecast at 9.75 percent.

President Dilma Rousseff’s administration is working to stimulate investment while slowing inflation persisting near the top of the central bank’s target range. Officials have lowered tariffs on some imports, intervened to strengthen the real and cut billions in spending from this year’s budget. Central bank board members signaled last week they will continue raising borrowing costs to prevent prices fanned by a weaker currency from curbing economic growth.

Swap rates on the contract due in January 2015 fell one basis point, or 0.01 percentage point, to 10.28 percent at 9:04 a.m. local time. The real strengthened by 0.1 percent to 2.3039 per U.S. dollar and has declined 7.5 percent in the past three months, the most among 16 major currencies tracked by Bloomberg.

The central bank considers the current pace of key rate increases to be appropriate, as a weaker real pressures short-term inflation, policy makers said in the minutes to their Aug. 27-28 meeting.

Benchmark Selic

Officials on Aug. 28 raised the benchmark Selic by a half-percentage point to 9 percent, the fourth straight increase and the fastest pace of monetary tightening of any major world economy tracked by Bloomberg.

Annual inflation measured by the IPCA index decelerated in August to 6.09 percent, the slowest since December, the national statistics agency said Sept. 6. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

Economists in the central bank survey raised their 12-month inflation forecast for the 10th straight week, to 6.13 percent.

Brazil’s economy grew 1.5 percent during the April to June period, or an annualized 6 percent, on the back of faster investments. That was the most since the first quarter of 2010 and more than all 44 forecasts from analysts surveyed by Bloomberg, whose median estimate was 0.9 percent.

Latin America’s largest economy will expand by about 2.5 percent this year and 4 percent next year, according to Finance Minister Guido Mantega.

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