Brazil Benchmark Rate Forecast Cut Down

Analysts who cover the Brazilian economy have cut their forecast for the year-end benchmark rate for the very first time since last November. The Central Bank of Brazil has made a split decision on last week, thereby easing predictions of a possibly steeper tightening cycle. The survey was conducted on more than 100 analysts and according to the prediction, the Selic rate of Brazil will increase to 8.25% from its earlier value of 7.5% by August, 2013. On the other hand, the policy makers of the country will be holding the borrowing costs at that level through the end of the current year. Incidentally, only on last week, the economists predicted a rate of 8.50% for August. On last Wednesday, the Central Bank of Brazil decided to increase the Selic rate by 25 basis points after it decided to hold the borrowing costs at a record low figure since the last October.

Incidentally, Brazil is the 2nd largest emerging market in the world and it grew last year at the slowest pace since 2009. The administration of the Brazilian President, Dilma Rousseff is currently under renewed pressure of taming the inflation which breached the upper limit of the target range of the bank in last March. Two of the bank directors voted against the decision of rate increase on last week. On the other hand, the policy makers in an accompanying statement while announcing the rate increase decision stated that the domestic and international uncertainties require that the monetary policy should be managed with proper care.

According to the Chief Emerging Markets Economist, Neil Shearing, the current increase, if happens, will turn out to be the shortest and smallest hiking cycle in the modern history of Brazil. Shearing added that the statement with this month’s decision was more dovish than what was perceived by many people. This led to some tampering of the expectations of pretty aggressive rate hikes.

Brazilian swap rates on the contracts which are scheduled to mature in January, 2015, declined by 5 basis points and is currently at 8.30%. On the other hand, the major currency of Brazil went down by 0.3% and is currently at 2.0166. When it comes to the annual inflation, the same reached 6.59%, the fastest increase since November, 2011. Central Bank currently targets price increases of around 4.5%, plus or minus 2 percentage points.