Brazil Analysts Lower 2016 CPI Forecast for First Time Since May

Brazil analysts reduced their forecasts for 2016 inflation for the first time in seven weeks as the central bank continues to raise borrowing costs.

Analysts changed their forecast for consumer price increases next year to 5.45 percent percent from 5.5 percent the prior week, according to the July 3 central bank survey of about 100 analysts published Monday. They also increased their 2015 inflation prediction to 9.04 percent, about double the target.

Brazil’s government is tightening both fiscal and monetary policy to avert sovereign credit downgrade and rein in above-target inflation. Latin America’s largest economy is heading toward its worst recession in 25 years.

The inflation outlook for 2016 would need to fall below the 4.5 percent target and stick to the goal for the following years to create conditions for monetary easing, a member of the government’s economic team with knowledge of monetary policy said July 1. That being the case, policy makers may take longer to start cutting interest rates than analysts predict because they want to make absolutely sure that inflation has been tamed before making their move.

Policy makers have boosted the benchmark interest rate in six straight meetings to 13.75 percent. The key rate will end this year at 14.5 percent and 12.06 percent next year, according to the central bank survey.