Brazilians Confident Interest Rates Will Keep Falling Fast

Private sector economists in Brazil are more optimistic about prospects for reducing the annualized official benchmark interest rate (SELIC), in light of the fact that inflation is under control and that there are no signs of short or medium-term price pressures, either from abroad or at home.

Moreover, the country finds itself in a situation in which there needs to be investment in the productive sector to create more jobs and meet internal demand with room to spare.

The foundations for a pickup in the economy were delineated last week in the Central Bank’s (BC) quarterly inflation report and the National Monetary Council’s (CMN) decision at a meeting last Friday, March 31, to lower the Long Term Interest Rate (TJLP) from 9% to 8.25%.

As a result, financial operators believe that the annualized official benchmark interest rate will go down more than they previously estimated.

According to the hundred market analysts and financial institution economists polled on Friday, March 31, by the BC for the bank’s weekly Focus Bulletin, the SELIC, which currently stands at 16.50%, is likely to be lowered to 15.75% at the next meeting of the Monetary Policy Committee (COPOM), on April 18-19.

If this in fact occurs, it will be the fourth consecutive incremental reduction of 0.75%. The analysts now foresee the possibility that the SELIC will shrink to 14.13% at the end of the year. In the previous poll they predicted 14.25%.

These expectations are part of a market scenario in which the exchange value of the US dollar will not exceed R$ 2.20 at the end of 2006 and will be worth R$ 2.34 at the end of 2007 (compared with last week’s forecast of R$ 2.38).

These prospects helped maintain the other forecasts for the key economic indicators stable in relation to the ones published in last week’s Focus Bulletin.

Agência Brasil

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