Economists raised their inflation outlook for Brazil for this year, despite the continued expected deterioration of country’s economy, as the monetary authority is expected to keep its benchmark interest rate unchanged.
Brazil’s official consumer-price index, the IPCA, is expected to end 2016 up 7.61%, according to a weekly central bank survey of 100 economists published Monday, compared with expectations of a 7.56% rise a week ago. It was the seventh straight week that the index was projected to increase, Nasdaq reported.
According to the central bank survey, economists kept their outlook for the yearend Selic rate at 14.25%, which is the rate’s current level. They increased their forecast for next year to 12.75% from 12.50%.
Meanwhile, Brazil’s gross domestic product is expected to shrink 3.33% in 2016, compared with expectations a week ago of a 3.21% contraction. For 2017, the economists now expect the economy to expand by 0.59%, compared with an expectation of 0.60% growth from the previous week’s survey.
They expect Brazil to post a $36.10 billion trade surplus this year, down from the $36.35 billion expected in the previous week’s survey.
Real Rises
The real gained along with emerging-market currencies as commodities advanced, offsetting concern that Brazil’s economy continues to worsen while policy makers struggle to get inflation and a budget deficit under control.
The real rose 0.5% to 3.98 per dollar in Sao Paulo. A gauge of 20 emerging-market currencies gained 0.3% as raw materials from crude to copper advanced. Commodities account for about half of Brazil’s exports.
The real climbed as China, Brazil’s top trading partner, stepped up efforts to restore stability to its own currency and economy. China’s balance of payments is good and capital outflows are normal, with the exchange rate basically stable against a basket of other currencies, People’s Bank of China Governor Zhou Xiaochuan said in an interview published in Caixin magazine over the weekend.
“Hopes that the PBoC will step up efforts seem to lend support to the real,” said Ipek Ozkardeskaya, an analyst at London Capital Group. “The fake optimism in the market on these hopes that major central banks will add more stimulus to prevent the world economy from plunging into a deeper melancholy help to give some color to risky assets such as the real.”
The outlook for Brazil’s economy worsened as analysts in a central bank survey published Monday said the nation is headed for a deeper recession. Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, were unchanged at 14.42%.
