Bloomberg News

Brazil Analysts See Steeper Interest Rate Increase in 2013

February 07, 2012

(Updates to add analyst quote in fourth paragraph.)

Feb. 6 (Bloomberg) -- Analysts covering Brazil increased their 2013 year-end interest rate forecast for a second straight week on concerns the U.S. economic recovery may fuel inflation.

The benchmark Selic rate will end 2013 at 10.75 percent, according to the median forecast in a Feb. 3 central bank survey of about 100 economists published today, up from an estimate of 10.38 percent the previous week. In Mumbai last week, central bank President Alexandre Tombini said Latin America’s biggest economy still has “some room” to cut rates from their current level of 10.5 percent.

The bank, in the minutes to its Jan. 17-18 meeting, said there is a “high” chance it will continue to cut its benchmark rate until it is below 10 percent. Tombini began cutting borrowing costs in August to protect Brazil from the European debt crisis, and has signaled he will continue to do so even after recent data show the economy accelerating.

“We saw better-than-expected data in the U.S. and this could lead to inflationary pressures ahead,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil in Sao Paulo, said in a phone interview. “Even though the central bank is confident it will cut rates to one digit, investors believe policy makers will have to resume rate increases to keep inflation under control.”

Futures Yield

The yield on the interest-rate futures contract maturing in January 2014, the most traded in Sao Paulo today, declined three basis points, or 0.03 percentage point, to 9.92 percent at 9:22 a.m. Brasilia time. The real weakened 0.3 percent, to 1.7236 per U.S. dollar.

U.S. employment climbed more than forecast in January, pushing the jobless rate down to 8.3 percent, the lowest in three years, the Labor Department said Feb. 3.

Investors forecast Brazil’s consumer prices will increase 5.29 percent this year, up from the previous week’s estimate of 5.28 percent, the central bank survey shows.

Annual inflation slowed to 6.5 percent in December, taking it back within its target range for the first time in eight months. Brazil targets annual consumer price rises of 4.5 percent, plus or minus two percentage points.

Economists raised their estimate for economic growth this year to 3.3 percent, from 3.27 percent. Latin America’s biggest economy will grow 4.2 percent next year, up from 4.15 percent. .

Data in the past month have shown the economy rebounding, after it contracted in the third quarter for the first time in more than two years. Brazil’s economic activity index, a proxy for gross domestic product, expanded at its fastest pace in 19 months in November, reversing a three-month contraction, while unemployment fell to a record low of 4.7 percent in December and industrial production rose at the quickest pace in seven months.

--With assistance from Dominic Carey in Sao Paulo and Andre Soliani in Brasilia. Editors: Harry Maurer, Joshua Goodman

To contact the reporters on this story: Raymond Colitt in Brasilia at rcolitt@bloomberg.net; Matthew Bristow in Brasilia at mbristow5@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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