Brazil Experts Betting Key Interest Rate Will Fall 0.75% to 15.75%

Brazil’s annualized benchmark interest rate (SELIC), which currently stands at 16.50%, is expected to be lowered to 15.75% this Wednesday, April 19, at the meeting of the Central Bank’s (BC) Monetary Policy Committee (COPOM).

Anyway, that is what the hundred private sector economists surveyed last week by the BC expect, according to this week’s edition of the Focus Bulletin, which was published Monday, April 17.

They believe that, with inflation under control, the organ in charge of monetary policy will find it feasible to continue the process of reducing interest rates.

The economists are predicting gradual declines in the coming months, with the possibility of a 14% SELIC at year’s end. They are more cautious, however, about interest rate reductions next year, for which they are forecasting a drop of only 100 basis points (1%), to 13%.

The good news in this week’s Focus Bulletin has to do with a general uplift in the economists’ confidence level regarding the pickup in industrial activity.

Their forecasts for this year’s growth in industrial production have been trending upwards for the last five weeks. Their latest projection is 4.48%, compared with the previous week’s estimate of 4.33%. For 2007 they continue to expect industrial production to increase 4.50%.

This improvement, however, was not enough for them to alter their predictions for this year’s growth in the Gross Domestic Product (GDP), the sum of wealth produced in the country. For the last 50 weeks they have set this figure at 3.50%, and their estimate for next’s year’s increase in the GDP also remains unchanged, at 3.70%.

By the same token, their forecast for the ratio between net government debt and the GDP continues to be 50.50% for this year and 49% in 2007.

The survey also maintained the previous projections of US$ 40 billion for this year’s trade surplus (exports minus imports) and US$ 9 billion for the current account surplus, which includes all the country’s external commercial and financial transactions.

Moreover, the US dollar is still expected to end the year trading at no more than R$ 2.20 and not to exceed R$ 2.35 by the end of 2007.

Agência Brasil

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