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Brazil’s Central Bank Sees Inflation Going Lower to 4.32% in 2006

This year’s Brazilian Broad Consumer Price Index (IPCA) is expected to register an inflation rate of 4.32%, according to the Focus bulletin released Monday, May 15, by Brazil’s Central Bank (BC).

The bulletin contains the results of a poll conducted last Friday, May 12, with a hundred market analysts and representatives of financial institutions to ascertain the tendencies of the major economic indicators.

Expectations regarding inflation have been falling for seven weeks, and the private sector economists are betting that this year’s inflation rate will be lower than the 4.50% target set by the National Monetary Council (CMN).

They believe that this month’s inflation will amount to around 0.23% and will increase to 0.25% in June. Their projection for the IPCA in the next 12 months rose from 4.15% to 4.18%.

Growth

The Gross Domestic Product (GDP), which represents the total wealth produced in the country, is now expected to grow 3.57% this year, a notch up from last week’s forecast of 3.51%, according to the Focus bulletin.

Although the market analysts have upped their estimates in the last two weeks, their projection is still considerably lower than the BC’s forecast of a 4% increase. For 2007, the hundred private sector economists polled by the bank predict that growth will amount to 3.70%.

The analysts’ estimate for the year-end ratio between net government debt and the GDP remained unchanged at 50.50% for 2006, but for next year they made a slight upward adjustment in their forecast, from 49% to 49.10%.

In terms of this year’s trade balance (exports minus imports), there was a slight lowering of expectations from last week’s expected surplus of US$ 40.32 billion to this week’s US$ 40.28 billion, still enough to sustain the projection of a current account surplus of US$ 9 billion. The current account includes all commercial and financial transactions abroad.

These estimates are set against a background in which it is estimated that the exchange value of the dollar at the end of the year will not exceed R$ 2.20 and that the annualized benchmark interest rate (SELIC) will finish this year at around 14% and will fall to 13% during the course of 2007.

Surplus

The foreign investments surplus in the São Paulo Stock Exchange (Bovespa) was of US$ 464.5 million in the first ten days of May. The value is the result of purchases of US$ 3.99 billion in shares and sales of US$ 3.53 billion. In the year’s accumulated value, the foreign investment surplus is of US$ 1.95 billion.

Agência Brasil

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