Brazil Economists Reduce Estimate for 2013 Year-End Rate

Analysts covering Brazil lowered their 2013 interest-rate forecast for the first time in two months.

Brazil’s 2013 year-end benchmark rate will be 10.5 percent, according to the median forecast in a Feb. 10 central bank survey of about 100 economists published today, compared with an estimate of 10.75 percent the previous week. Growth next year will be 4.1 percent, the economists said, down from an estimate of 4.2 percent the week before.

Policy makers will increase the Selic next year to keep inflation under control after reducing it to 9.5 percent this year, the survey shows. Economists expect inflation to be 5.29 percent this year and 5 percent next year, above the midpoint of the central bank’s target range. Brazil targets inflation of 4.5 percent, plus or minus two percentage points.

There is a “high” chance that policy makers will cut the benchmark rate until it is below 10 percent, the bank said in the minutes to its Jan. 17-18 policy meeting. Since August, the bank has reduced the rate by 200 basis points to 10.50 percent to protect Brazil’s economy from the European debt crisis.

Global financial markets fell late last week over uncertainty whether Greece would adopt austerity measures required for fresh international aid. Lawmakers in Athens approved the necessary legislation in the early morning hours of today.
Growth Forecast

Brazilian inflation will converge this year toward the target of 4.5 percent, the central bank’s director of economic policy, Carlos Hamilton, said on Feb. 10. Annual inflation slowed to 6.22 percent in January.

Analysts held their estimate for growth in Latin America’s biggest economy this year at 3.3 percent. Growth slowed to about 3 percent last year from around 7.5 percent in 2010, Central bank President Alexandre Tombini said on Feb. 2.

Statistics in the last month showed 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.