Tags: Brazil | inflation | growth | Selic

Brazil Central Bank Sees Slower Growth, Faster Inflation in 2014

Thursday, 26 June 2014 10:57 AM

Brazil’s central bank forecast economic growth will slow and inflation will quicken this year more than initially estimated.

Consumer prices will rise 6.4 percent this year if policy makers keep the benchmark Selic at 11 percent, according to the reference outlook in the quarterly inflation report published today. The inflation forecast compares with a 6.1 percent estimate in the March report. Policy makers also said the economy will expand 1.6 percent this year, compared with the previous estimate of 2 percent.

The central bank says that the balance between demand and supply will become “disinflationary” in the short term, and that with the current “monetary conditions,” consumer price increases will slow, rising 5.1 percent by the second quarter of 2016. Inflation will exceed the 6.5 percent upper limit of the inflation target in the third quarter.

They also said that the impact of the world’s longest interest rate tightening cycle, interrupted last month, hasn’t yet fully materialized.

Swap rates on the contract due in January 2015 rose 5 basis points, or 0.05 percentage point, to 11.44 percent at 9:02 a.m. local time. The real strengthened by 0.2 percent to 2.2122 per U.S. dollar.

Policy makers in the largest emerging market after China are struggling to tame above-target inflation without stifling economic growth ahead of the presidential election in October. Sluggish economic growth coupled with a higher cost of living has eroded support for President Dilma Rousseff.

Real Support

The central bank board this week extended for six months a program to support the real, helping to prevent the price of imports from rising. It last month halted key rate increases to study the impact of a yearlong tightening cycle.

Central bankers on May 28 held borrowing costs at 11 percent after increasing them by 375 basis points, or 3.75 percentage points, during the previous nine meetings. The Selic is more than twice as high as any other target lending rate among major rate-setting nations in Latin America, according to data compiled by Bloomberg.

Annual inflation in mid-June accelerated to 6.41 percent from 6.31 percent the month prior, the fastest in a year.

Economists surveyed by the central bank expect growth to slow to 1.16 percent this year, according to the survey published on June 23. Those analysts also expect inflation to accelerate to 6.46 percent.

Brazil’s inflation is under control, and the country has conditions for continuous economic growth, Rousseff said on June 10 in Brasilia. The central bank targets annual inflation of 4.5 percent, plus or minus two percentage points.

Latin America’s largest economy grew a revised 2.5 percent last year.

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Brazil's central bank forecast economic growth will slow and inflation will quicken this year more than initially estimated.
Brazil, inflation, growth, Selic
Thursday, 26 June 2014 10:57 AM
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