Brazil Central Bank Cuts 2005 Growth Forecast to 3.4% (Update1)
Brazil Central Bank Cuts 2005 Growth Forecast to 3.4%
June 30 (Bloomberg) -- Brazil's central bank cut its 2005 growth forecast to 3.4 percent and lowered its inflation estimate for next year, a sign that policy makers are poised to start cutting interest rates.
Central bankers cut the growth estimate from the 4 percent they forecast in March and said nine months of interest rate increases may help ease inflation next year to 3.7 percent, compared with a previous forecast of 3.8 percent.
``The 2006 inflation forecast is below the target and that gives room for the central bank to begin cutting interest rates,'' said Jose Carlos de Faria, senior economist for Latin America at Deutsche Bank AG in Sao Paulo.
The central bank based its forecasts on the assumption that the benchmark interest rate would remain at 19.75 percent. The bank increased its 2005 inflation forecast to 5.8 percent from 5.5 percent, citing short term factors such as utility rates that rose more than expected. Policy makers target inflation of 5.1 percent for this year and 4.5 percent in 2006.
Central bankers raised the benchmark interest rate by 3.75 percentage points over the nine months through May to the current 20-month high. They held the rate steady at their June 14-15 meeting after price increases slowed. The central bank is expected to start cutting the benchmark in September, said Faria, who forecasts the interest rate will fall to 18.25 percent by yearend.
Inflation Slows
Brazil's inflation rate, as measured by the government's IPCA consumer price index, slowed to 0.12 percent in the month through June 13, its lowest level in almost two years, compared with a rate of 0.49 percent for the full month of May and 0.83 percent for the month through May 13. The annual inflation rate dropped to 7.72 percent through June 13, from 8.05 percent through May.
Annual inflation will slow to 6.05 percent by year-end, according to the median estimate in a weekly central bank survey of about 100 economists published June 27. The forecast fell from 6.16 percent the week before and from 6.39 percent in Mid-May.
The central bank also said that a decrease in Brazil's agricultural crop and a revision in the county's growth last year made by the government also contributed for a reduction of its 2005 growth estimate.
To contact the reporter on this story: Romina Nicaretta in Sao Paulo at at Rnicaretta@bloomberg.net
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