Brazil’s Central Bank Expected to Raise Interests

Brazil’s financial market continues to expect an increase in the benchmark interest rate (Selic) at next week’s meeting of the Monetary Policy Committee (Copom).

Despite the fact that inflationary pressures have abated somewhat in recent weeks, nearly a hundred institutions and market analysts sounded by the Central Bank (BC) predict a Selic of 17% at the end of 2004.

The BC survey suggests that the Selic, which currently stands at an annualized 16.25%, will be hiked to 16.50% next week and at intervals of 0.25% in each of the two ensuing months.

The market once again raised its forecast for this year’s trade balance, from US$ 32 billion, in the previous survey, to US$ 32.3 billion (US$ 27.08 billion in 2005).

Prospects also improved for foreign investment inflows, which are expected to amount to US$ 15 billion this year and US$ 13 billion in 2005.

As a result of the expected increase in foreign exchange earnings, estimates for the ratio between net government debt and the Gross Domestic Product (GDP) were lowered from 55.40% to 55.30%.

Forecasts for this year’s GDP growth were maintained at 4.50%, while forecasts for GDP growth in 2005 were jacked up from 3.50% to 3.55%, according to the calculations made by market analysts.

The BC survey also estimates that the growth in industrial production this year will amount to 6.55%, slightly lower than the 6.61% in last week’s survey.

Moving in the same direction, the forecast for the current account surplus was cut from US$ 9.20 billion to US$ 9.10 billion.

Agência Brasil

Translator: David Silberstein

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