SURVEY: Brazil's Central Bk Seen Hiking Rates Again Wed
May 23, 2001
(This article was originally published Tuesday)
Selic rate history:
Apr 18 Mar 21 Jan 17 Dec 20 July 19 Mar/99
16.25% 15.75% 15.25% 15.75% 16.5% 45%
By Adriana Arai
Of DOW JONES NEWSWIRES
SAO PAULO -- Persistent upward pressure on inflation is widely expected to lead Brazil's central bank to raise interest rates for the third month running Wednesday.
Economists say unusually high foodstuff prices earlier this year, a weak currency and the current energy crisis herald an additional 50 basis point hike in the key Selic short-term rate, even though Latin America's No. 1 economy looks set to slow down sharply as of June amid electricity rationing.
In a Dow Jones Newswires' survey of 19 economists, 18 predicted a 50 basis point hike in the Selic rate target to 16.75% while one foresees a 75 basis point increase. The central bank raised the Selic by 50 basis points in March and hiked it another 50 basis points in April amid inflation concerns, reversing a two-year policy of monetary loosening.
The central bank's monetary committee, known as Copom, started its two-day meeting Tuesday and is set to announce its decision on rates after 2100 GMT Wednesday.
In addition to higher-than-expected inflation during the first four months of the year, a weak currency and rising international oil prices, central bank officials said they were caught off guard earlier this month when the government said Brazilians would have to ration electricity by as much as 20% for at least six months starting in June.
The rationing program further clouded the already bearish inflation outlook, as the government will levy surcharges on medium and large households to encourage energy saving.
"The long list of hikes in public service fees - bus fares and water in Sao Paulo, fuel, electricity, and telephone - don't signal any relief in the short term," said Jose Pena, chief economist with Bank Boston in Sao Paulo.
Government officials said the energy crunch will have a direct 0.15 percentage point impact on the key IPCA Broad Consumer Price Index in the coming months. Central bank officials added that the rationing plan will have secondary effects on the price index and that they will react to these upcoming pressures.
The IPCA has risen 2% in the first four months of the year, consuming half the 2001 target of 4%. Inflation would have to average 0.24% monthly to reach 4% by the end of 2001.
"It's highly unlikely that the central bank will manage to bring inflation down to 4% by year end, but it's important to show they haven't given up on the target," said Doug Smith, head of Latin American research at IDEAglobal in New York.
Given the current pressures, some analysts who believe in a 50 basis point hike also said they won't be entirely surprised if the central bank decides to go for an unprecedented 100 basis point increase in the Selic.
According to a central bank survey of 70 institutions last week, IPCA inflation expectations rose to 5% from 4.67% the previous week.
The recent interest rate hikes and the energy rationing plan have dimmed Brazil's economic outlook this year and possibly next, if the electricity crisis drags on into 2002.
Analysts have lowered their 2001 growth forecast to below 3% from 4.5% at the beginning of the year. Growth estimates had already been lowered to around 4% after neighboring Argentina's economic woes started to hurt the currency here in March.
The real ($1=BRR2.306) has depreciated around 15% against the dollar since the beginning of the year.
-By Adriana Arai, Dow Jones Newswires; 55-11-3813-1988; adriana.arai@dowjones.com |
