Brazil Analysts Raise 2016 Selic Estimate by 50 Basis Points

  • Benchmark rate highest in nine years fails to slow inflation
  • Traders continue to bet on more rate increases in 2016

Brazil analysts forecast even less monetary loosening next year, even as they expect inflation to breach the ceiling of the target range.

The benchmark Selic will finish 2016 at 13.75 percent, up from 13.25 percent previously, according to the Nov. 20 central bank survey of about 100 analysts. Inflation will slow to 6.64 percent by year-end, above the top of the target range, which is 4.5 percent plus or minus two percentage points, according to the survey. Consumer prices will jump 10.33 percent this year, up from the previous estimate of 10.04 percent.

Raising the benchmark Selic to its highest in nine years has failed to prevent inflation from surging to double digits. Policy makers have struggled to rein in the cost of living as the government struggles to implement austerity measures and a sliding currency lends additional pressure by pushing up the cost of imports. An economy headed for two straight years of recession complicates any prospect of raising rates.

Instead of bringing inflation to its 4.5 percent target by the end of next year, as had been its initial pledge, the central bank now says it plans to reach the goal in 2017. Policy makers have signaled that they intend to keep the benchmark borrowing rate on hold at 14.25 percent for a prolonged period.

Economists and traders are at odds, with the former expecting lower rates next year. The market continues to bet more rate increases are in store in 2016, as the government struggles to implement austerity measures and inflation expectations continue to creep upwards. Economists have raised their 2015 estimate for consumer price increases for 10 straight weeks.

Latin America’s largest economy will contract 3.15 percent this year and 2.01 percent in 2016, according to the survey.

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