Brazil’s Interest Rate May Drop Below 9%, Dennis Says (Update1)
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By Fabio Alves
April 3 (Bloomberg) -- Brazil’s central bank may slash interest rates below 9 percent for the first time on record this year, paving the way for a rebound in Latin America’s biggest economy in 2010, according to Citigroup Inc.’s Geoffrey Dennis.
“As inflation comes down sharply and commodities prices decline, Latin American central banks are now able to cut rates very aggressively to support the economy,” said Dennis, Citigroup’s head of Latin American equity research, at a conference at Columbia Business School in New York. “Interest rates could go to just 9 percent in Brazil or even below that.”
Brazil’s central bank on March 11 lowered its benchmark interest rate by the most in five years in a bid to spark growth after the economy contracted 3.6 percent in the fourth quarter. Bank President Henrique Meirelles cut the so-called Selic rate by 1.50 percentage points to 11.25 percent, matching the record low in place from September 2007 through April 2008. The rate was as high as 45 percent a decade ago.
Economists expect policy makers will cut the benchmark interest rate at their April 29 meeting for a third straight time to 10.25 percent, according to the median forecast in the most recent central bank survey. Consumer prices rose 0.11 percent in the 30 days through mid-March, the slowest pace since 2006, the national statistics agency said March 25.
Economic Outlook
Latin American economies will contract just under 1 percent this year, compared with 4 percent growth in 2008, Dennis said. He predicts the Brazilian economy will shrink close to 1 percent in 2009, while Mexico’s will contract 3.5 percent. The region’s gross domestic product will rebound in 2010, led by 4 percent growth in Brazil, Dennis said.
“We are looking for reasonable economic recovery in 2010 in Latin America, particularly in Brazil,” Dennis said. “We are advising investors to look for opportunities to buy markets because we are going to see next year a more positive outlook for financial markets.”
Brazil’s Bovespa stock index has climbed 21 percent from this year’s low of 36,234.69 on March 2. The measure today rose for a fourth day, gaining 0.8 percent at 12:17 p.m. in New York.
The MSCI Latin America Index jumped 11 percent in March, following an equity rally around the world, after the biggest U.S. banks said they made money in the first two months of 2009 and the Treasury Department unveiled plans to rid financial firms of toxic assets. The MSCI Emerging Markets Index surged 14 percent for the month, the most since December 1993.
Oil increased 11 percent last month, the most since May, and gold, platinum, lead, zinc and aluminum advanced on optimism U.S. economic stimulus plans will revive growth and boost demand for commodities. The UBS Bloomberg Constant Maturity Commodity Index of 26 contracts jumped 7 percent. |
