Brazil's 2021 interest rate outlook rises to 3.75%, survey shows - Metro US

Brazil’s 2021 interest rate outlook rises to 3.75%, survey shows

FILE PHOTO: Outbreak of the coronavirus disease (COVID-19) in Rio de Janeiro

BRASILIA (Reuters) – The outlook for Brazilian interest rates this year rose to its highest since last May, a central bank survey of economists showed on Wednesday, with sticky inflation and a fragile fiscal outlook set to push the central bank into tightening policy.

The average forecast of the benchmark Selic rate at the end of this year rose to 3.75% from 3.50%, while the end-2022 forecast remained steady at 5.00%, according to the latest weekly ‘FOCUS’ survey of over 100 economists.

Four weeks ago, the average end-2021 outlook was 3.25%. But the central bank dropped its forward guidance at its Jan. 19-20 policy meeting, citing inflation expectations rising close to target over the next couple of years.

Even though the economic recovery is losing steam, high food inflation continues to push up overall price pressures, and the prospect of further government support for the poor is intensifying investors’ concern over the public finances.

The central bank’s benchmark Selic rate has been at a record low of 2.00% since last August, but many economists now expected the tightening cycle will begin earlier than thought a few weeks ago and will be more aggressive.

Economists at Barclays reckon the central bank will raise rates at its next policy meeting in March.

The average forecast for IPCA consumer price inflation at the end of this year was unchanged at 3.60%, the survey showed, close to the central bank’s goal of 3.75%, with a margin of error of 1.5 percentage point on either side.

The average inflation forecast over the next 12 months rose to 3.7% from 3.6%. The central bank’s end-2022 goal is 3.50%.

(Reporting by Jamie McGeever; Editing by Alistair Bell)

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