Bloomberg News

Templeton Sees Brazil Selic at 7% or Less If Countries Exit Euro

May 25, 2012

Brazil’s benchmark Selic interest rate may fall to 7 percent or less and the dollar could rise to more than 2.40 reais if two or more countries leave the Eurozone, creating a “rupture” in the global economy, said Carlos Thadeu de Freitas Gomes Filho, senior economist at Franklin Templeton Investimentos Brasil.

“The external environment is deflationary and commodity prices are going to fall,” said Gomes Filho in a telephone interview from Rio de Janeiro. “This opens space for the central bank to cut interest rates. The central bank is on the right path, despite changing its signals very quickly.”

Brazil’s central bank has lowered the Selic by 350 basis points since August to shield the country’s economic growth from the effects of Europe’s debt crisis and a Chinese slowdown. After cutting the Selic to 9 percent in April, the central bank said further cuts would be “conducted with parsimony”. Traders expect the bank’s monetary policy committee, or Copom, to reduce the benchmark rate by another 0.5 percentage point at its meeting next week, according to data compiled by Bloomberg.

Government measures to boost the Brazilian economy will have little effect and expansion is likely to slow to 2.5 percent this year because of the global crisis, Gomes Filho said.

A Greek exit from the Eurozone could trigger a deepening of the crisis, leading to a “rupture” in the international economy, although the Greek situation alone would not have this effect, he said.

To contact the reporter on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net


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