(Updates with analyst comment in fourth paragraph.)
Dec. 12 (Bloomberg) -- Economists covering Brazil cut their year-end 2012 forecast for the benchmark rate for the second straight week on expectations of slower growth in the wake of Europe’s debt crisis.
Economists expect the Selic rate to fall to 9.50 percent by the end of 2012, according to the median forecast in a Dec. 9 central bank survey of about 100 economists published today, down from last week’s forecast of 9.75 percent. Analysts also cut forecasts for inflation next year, partly as economists incorporated new weightings for items that make up the IPCA index, disclosed by the national statistics agency in November.
Central bank President Alexandre Tombini last month trimmed rates for a third straight meeting, to 11 percent, to protect Brazil from the European debt crisis. The world’s sixth-biggest economy shrank in the third quarter, contracting 0.04 percent from the previous three months, as credit curbs, higher borrowing costs and budget cuts in the beginning of the year sapped demand for goods and services.
“The inflation expectations partly reflect the change in the index, and also the worsening external environment with Europe likely going into a recession and Chinese growth slowing,” said Mauricio Nakahodo, senior economist at CM Capital Markets, in a telephone interview from Sao Paulo.
Lower CPI Forecasts
Consumer prices as measured by the IPCA index will increase 5.44 percent over the next 12 months, down from a forecast of 5.47 percent the previous week, the survey showed. Prices will rise 5.42 percent next year, down from 5.49 percent in last week’s survey. Analysts left unchanged their 6.50 percent inflation forecast for this year.
Traders in the interest-rate futures market raised bets for cheaper borrowing costs, pushing the yield on contracts due January 2013 down four basis points, or 0.04 percentage point, to 9.82 percent at 10:23 a.m. Brasilia time. The real fell 1 percent to 1.8164 per dollar.
Analysts lowered their forecast for economic growth this year to 2.97 percent, from 3.09 percent, the survey found. The world’s second-largest emerging market after China will expand 3.4 percent next year, down from a previous forecast of 3.48 percent, according to the survey.
Brazil’s economy contracted for the first time in 2 1/2 years in the third quarter after policy makers raised borrowing costs earlier in the year and the European and U.S. debt crises hurt confidence. GDP shrank 0.17 percent in the quarter on an annualized basis.
Annual inflation slowed for a second straight month in November, to 6.64 percent. Brazil targets inflation of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range since April.
In the minutes to its November policy meeting published last week, the central bank cut the inflation forecasts in its so-called reference and market scenarios to around the 4.5 percent midpoint of its target range at the end of 2012.
The national statistics agency reviews the weight of items in its basket every five years to better reflect family consumption patterns detected by its surveys, according to Eulina Nunes, coordinator of the IPCA index at the Rio de Janeiro-based statistics agency, IBGE. The weighting of cable TV and consumer electronic goods will increase in the consumer- price basket, while that of cigarettes will decline, Nunes said after the agency announced the changes.
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