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(Updates with Finance Minister’s remarks in 5th paragraph.)
Oct. 3 (Bloomberg) -- Economists covering Brazil cut their 12-month inflation estimate for the first time in six weeks and reduced their forecast for interest rates, after the central bank signaled further interest rate cuts won’t stoke inflation.
Consumer prices will rise 5.71 percent in the next 12 months, according to the median forecast in a Sept. 30 central bank survey of about 100 economists published today. The forecast was down from a 5.76 percent forecast the previous week that was the highest this year.
“The international scenario got worse, and commodities fell, so the rise in inflation forecasts over recent weeks was revised a bit,” said Solange Srour, chief economist at BNY Mellon ARX Investimentos in Rio de Janeiro.
Yields on interest rate futures plunged today on speculation President Dilma Rousseff wants to cut the benchmark rate to less than 10 percent next year. Yields on contracts due January 2013 fell 20 basis points to 10.13 percent at 3 p.m. New York time.
Brazil’s “ideal” interest rate after inflation should be between 2 percent and 3 percent, Finance Minister Guido Mantega told reporters today in Sao Paulo. The inflation-adjusted rate was 4.7 percent in mid-September, the highest in the Group of 20 Nations.
Rousseff wants to cut the Selic rate to 9 percent next year, Estado do S. Paulo newspaper reported yesterday, citing three government officials it didn’t identify. The report came after Rousseff last week said Brazil must take advantage of the global slowdown to lower its benchmark interest rate, which at 12 percent is the highest in the Group of 20.
“As the financial crisis gets worse, this time we’ll take advantage of it,” Rousseff told a group of applauding businessmen on Sept. 30 in Sao Paulo. “We hope, and we can, initiate a cycle of reductions in the benchmark rate.”
The president’s comments spurred bets that policy makers will accelerate the pace of interest rate cuts when they meet this month even as inflation remains at a six-year high.
Analysts expect the central bank to cut its benchmark Selic rate half a percentage point at each of its next three policy meetings, taking it down to 10.5 percent by January, and then hold it at that level until the second quarter of 2013, the survey found. A week earlier, analysts had forecast that the central bank would start raising the rate again in the last month of 2012.
Traders are pricing in a bigger cut, of 75 basis points, at the central bank’s Oct. 18-19 meeting, according to Bloomberg estimates based on interest-rate future yields.
Central bank President Alexandre Tombini surprised analysts Aug. 31 by slashing the Selic rate by 50 basis points, citing a “substantial deterioration” in the global outlook.
In today’s survey, analysts stuck to their forecast for prices to rise 6.52 percent this year. Next year they expect prices to rise 5.53 percent, compared with 5.52 percent in the previous week’s survey. They held their forecast for 2013 inflation unchanged at 4.80 percent.
The real was up 0.1 percent to 1.8777 per U.S. dollar at 3 p.m. in New York. The currency has fallen 17 percent against the dollar since the end of July, the second most among 16 major currencies tracked by Bloomberg after the South African rand. The weaker real is unlikely to boost inflation expectations, since its effects will be offset by lower commodities prices, said Pedro Tuesta, a Washington-based senior Latin America economist at 4Cast Inc., in a telephone interview.
The S&P GSCI Index of commodities has fallen 10 percent over the last two weeks.
Consumer prices rose 7.33 percent in the year through mid- September, exceeding the 6.5 percent upper limit of the bank’s target range for a fifth straight month.
Latin America’s biggest economy will grow 3.51 percent this year and 3.7 percent in 2012, analysts forecast for the second straight week.
--Editors: Harry Maurer, Richard Jarvie
To contact the reporter on this story: Matthew Bristow in Brasilia at firstname.lastname@example.org
To contact the editor responsible for this story: Joshua Goodman at email@example.com