Brazil Analysts Boost Inflation, Interest Rate Calls for 2016

  • Central bank extended time period for bringing CPI to target
  • Analysts raise forecast for 2016 Selic for third straight week

Brazil analysts forecast faster inflation and see less room for cuts in the benchmark rate for 2016, as political turmoil hobbles efforts to fortify fiscal accounts and avoid a second sovereign downgrade to junk.

Brazil’s Selic rate will be 13 percent at the end of next year, according to the Oct. 23 central bank survey of about 100 analysts. That’s up from the previous week’s estimate of 12.75 percent and marks the third straight week the forecast has risen. Inflation next year will reach 6.22 percent, the analysts said, up from 6.12 percent the previous week.

The outlook for faster inflation appears in the first Focus survey since the central bank altered its monetary policy communique to remove language indicating a goal of slowing consumer price increases to target by year-end 2016. Renewed political friction threatening the government’s fiscal adjustment along with the recession has clouded the outlook for the nation’s credit rating, which Standard & Poor’s downgraded to junk in September.

The central bank last week held Brazil’s key rate at 14.25 percent for the second straight meeting. Instead of bringing inflation to its 4.5 percent target by the end of next year, the bank now says it aims to reach the goal “over the relevant monetary-policy horizon.”

Brazil’s inflation in the 12 months through mid-October accelerated to 9.77 percent from 9.57 percent the previous month, still more than double the 4.5 percent target. Analysts surveyed by the central bank predict consumer prices will increase 9.85 percent in 2015, even as gross domestic product shrinks by 3.02 percent. The analysts see a second year of recession in 2016, with GDP dropping by 1.43 percent.

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