Brazil Said to Wait for 4.5% CPI Forecast Before Rate Cut

Brazil Said to Wait for 4.5% CPI Forecast Before Rate Cut

by Andre Soliani Costa
2:50 PM BRT
May 7, 2015

Brazil’s central bank will wait for analysts to cut their inflation outlook to 4.5 percent before considering whether to reverse monetary policy, a person close to the government’s economic team said.
Forecasts that the central bank will reduce the benchmark interest rate by early next year are premature, said the person, who asked not to be named because the information isn’t public. Analysts surveyed by the central bank predict consumer prices will rise 8.26 percent this year and 5.60 percent in 2016.
Brazil has raised benchmark interest rates five times since President Dilma Rousseff was reelected in October and has pursued the most hawkish monetary policy among the world’s largest economies this year. Analysts are more pessimistic than the central bank on where inflation is headed in part because they believe service sector prices will remain elevated, according to the person.
Policy makers signaled in the minutes to their April 28-29 rate decision that they will continue to raise benchmark borrowing costs from the current level of 13.25 percent.
“The gains achieved in the fight against inflation — exemplified by benign signs stemming from medium and long-term outlook indicators — aren’t yet sufficient,” policy makers said in the minutes published Thursday.
Traders reinforced bets on Thursday that the central bank will raise borrowing costs in June for a sixth straight meeting to as high as 13.75 percent.
Swap Rates
Swap rates maturing in January 2017, the most traded in Sao Paulo, rose 14 basis points, or 0.14 percentage point, to 13.64 percent at 2:55 p.m. local time. The real rose 0.4 percent to 3.0233 per U.S. dollar.
Analysts predict the central bank will start cutting interest rates in January to revive economic growth, a central bank survey this week showed.
They also forecast central bank President Alexandre Tombini will fail to bring inflation to the 4.5 percent target by the end of next year.
Monthly inflation of 1.32 percent in March will start slowing soon, the person said. Consumer prices rose 0.75 percent in April, according to the median estimate in a Bloomberg survey of 39 analysts. The national statistics agency is scheduled to report the figure Friday.