Brazil Key Rate Seen Falling by One Percentage Point This Year

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(Bloomberg) -- Brazil’s key interest rate is forecast to fall faster this year and go up less than previously expected in 2020 as the recovery of Latin America’s largest economy grinds to a halt.

Economists cut their end-2019 estimate for the benchmark Selic rate to an all-time low of 5.5%, from 5.75% previously, according to a weekly central bank survey. By the end of next year, they expect the rate to increase only half a percentage point to 6%, down from their prior call for 6.5%, where the Selic currently stands.

Brazil Key Rate Seen Falling by One Percentage Point This Year

Brazil’s economy hasn’t gained traction since President Jair Bolsonaro came to power in the beginning of 2019, and inflation remains subdued. The monetary authority said last week in a quarterly report there’s a mere 1% chance that inflation exceeds the target range. With the economy heading for its worst economic performance since it emerged from recession in 2017, the main obstacle for lower rates is progress of a pension reform proposal being discussed in Congress, policy makers have signaled.

Economists expect Brazil to grow 0.85% this year, down slightly from their 0.87% forecast the prior week. The economy expanded 1.1% in each of the past two years.

©2019 Bloomberg L.P.

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