Brazil Economy to Grow 2 Percent Next Year

Brazilian Central Bank President Ilan Goldfajn said that Latin America’s largest economy remains weak though it is on course to show modest growth next year. In an interview with a Sao Paulo radio station, he said Brazil may achieve growth of 2% in 2018 if the economy continues expanding at its current pace.

 He also said he sees no risk to the continuing process of reducing inflation, adding the central bank will keep performing the role of keeping prices in check through adequate monetary policy, Mercopress reported.

“What we are seeing is a gradual recovery,” he told the Jovem Pan radio station, but refused to speculate on whether the government would change fiscal targets in view of falling tax revenue.

Last week, the central bank reduced its benchmark Selic rate to 9.25%, the seventh cut since October. He also said reforms in congress will help the country lower interest rates, referring to a planned pension reform.

Analysts forecast the Selic falling to 8% by the end of this year, according to a central bank poll released on Monday. Brazil’s annual inflation rate declined in mid-July to 2.78%, the lowest in 18 years.

Brazil’s GDP shrank more than 3% in each of the past two years, the deepest and longest downturn on record. In June, however, the government said the GDP grew 1% in the first quarter from the preceding one, its biggest rise since the second quarter of 2013.

Brazilian consumer prices likely rose in July, snapping back after a period of deflation in June thanks to a fuel tax hike and higher power prices, a Reuters poll of economists showed on Tuesday.

Still, annual inflation probably slipped to its lowest rate in 18 years, keeping the central bank on track to continue cutting interest rates aggressively.

Consumer prices are expected to have risen 0.19% in July from the month before, compared to a 0.23% drop in June, according to the median of 25 estimates in the poll. They ranged from a fall of 0.20% to an increase of 0.65%.

Inflationary pressure is expected to remain through August due to the impact of a temporary hike in energy rates, which was pushed through by regulators to make up for a rainfall-related drag on hydropower output. The effect of a mid-July increase in the so-called PIS/Cofins social contribution tax on fuels should also linger in the short term.

But economists widely expect annual inflation to remain subdued due to a weaker-than-expected economic recovery.