Brazil Analysts Forecast Two-Point Interest Rate Cut by End-2017

Brazil economists lowered their 2017 forecast for the benchmark rate for the first time in six weeks as they reduced their outlook for inflation.

Economists lowered their end-2017 Selic call to 12.25 percent from 12.5 percent previously and versus the benchmark rate’s current level of 14.25 percent, according to the weekly Focus survey conducted April 8. They also lowered their 2017 inflation forecast for the first time in nine weeks to 5.95 percent, from 6 percent previously, and their 2016 inflation outlook to 7.14 percent from 7.28 percent.

Inflation has returned to single digits as government-regulated price adjustments faded and the currency strengthened. While economists and the market are forecasting lower interest rates this year, the central bank has affirmed there isn’t space for looser monetary policy. Indeed inflation remains more than double the targeted level.

With the currency strengthening and inflation expectations falling, the market for weeks has been betting the central bank will reduce the Selic rate by a full percentage point by the end of 2016, according to interest-rate swaps data compiled by Bloomberg. Economists in last week’s survey began forecasting a Selic reduction this year for the first time since November.

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