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Brazil analysts see higher key-Rate and faster inflation in 2022

 

By Maria Eloisa Capurro / Bloomberg

SAO PAULO
Petroleumworld 09 13 2021

Brazil analysts raised their benchmark interest rate forecasts for this year and next after surging energy prices pushed annual inflation to a five-year high.

Policy makers will lift the benchmark Selic to 8% at the end of this year, above the previous estimate of 7.63%, according to a central bank survey published on Monday. Analysts also raised their forecast for the interest rate in 2022 to 8%.

Brazil’s annual inflation hit 9.68% in August, well above the central bank’s goal of 3.75%. A severe drought is driving up electricity bills just as the economic reopening pressures services prices. While President Jair Bolsonaro provided financial markets some relief when he signaled a truce with the Supreme Court last week, political tensions have not fully dissipated.

In the survey, analysts see consumer prices rising 8% in December and 4.03% at the end of 2022, both readings above target. At the same time, they lowered economic growth estimates to 5.04% in 2021 and 1.72% next year.

Policy makers led by Roberto Campos Neto have been hiking the interest rate since March and have signaled a second consecutive increase of a full percentage point for next week. A number of analysts now believe an even steeper rise is warranted, with traders in interest rate futures betting on a hike of at least 125 basis points.

The jump in consumer prices appears to be widespread, with eight out of nine product and service categories surveyed by the statistics agency registering increases in August. This could push central bankers to “act fast” to tame inflation expectations, Campos Neto said last week.

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