Brazil Economists Raise Forecast for End-2016 Benchmark Rate

  • Inflation expected to be above target range this year and next
  • Analysts also see bigger contraction in gross domestic product

Brazil analysts increased their forecast for the year-end 2016 benchmark interest rate for the second straight week, as their outlook for inflation this year worsened for the 11th straight week.

The benchmark Selic will finish 2016 at 14.13 percent, up from 13.75 percent previously, according to the Nov. 27 central bank survey of about 100 analysts. Inflation will accelerate to 10.38 percent by year-end and remain above the top of the target range next year, according to the survey.

Higher rates and lagging confidence are smothering activity in Latin America’s largest economy. Brazil’s statistics institute is set to release data Tuesday showing a third straight quarter of contraction as the country continues on its path toward back-to-back years of recession. The downturn is complicating the central bank’s effort to slow inflation that’s running in the double digits.

Policy makers say they plan to bring inflation to its 4.5 percent target in 2017, and held the Selic rate at 14.25 percent in the Nov. 24-25 monetary policy meeting -- its highest since 2006.

The decision was the first non-unanimous vote in more than a year, with two of eight central bank directors favoring a 50 basis point increase. That tacks closer to the market’s outlook of as much as 175 basis points of tightening next year than to the median perspective of economists surveyed by the central bank, who don’t expect rate increases even with inflation seen at 6.64 percent in 2016.

Policy makers target inflation of 4.5 percent plus or minus two percentage points. Brazil’s gross domestic product will contract 3.19 percent and 2.04 percent this year and next respectively, according to the survey.

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