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Central
Bank hikes again. In its 27 April meeting, the Central
Bank decided to further raise the benchmark SELIC interest rate by 50
basis points from 15.75% to 16.25%. The monetary authority
highlighted continued concerns about the pass-through of accelerated
currency depreciation to domestic prices, uncertainty about oil price
levels and the increased prospects for higher administered prices this
year as key factors behind the interest rate increase. According to
IBGE, consumer prices rose 0.58% in April over March. The April
figure was well above the 0.42% Consensus figure and brought the annual
inflation rate to 6.6%. This month’s Consensus Forecast sees
consumer prices rising on par with the Central Bank’s target. The
April tightening is the second interest rate hike this year – the
Central Bank increased the SELIC rate by 50 basis points on 21 March –
and clearly demonstrates the Central Bank’s commitment to maintain its
credibility in monetary policymaking. The Central Bank’s move has
prompted a notable upward adjustment in interest rate forecasts for this
year. According to this month’s Consensus Forecast, interest rates
are likely to remain at current levels through the second quarter.
Rates should then again resume their downward trend in the second half of
the year.
Trade
deficit remains concern but seen narrowing. April trade
data indicate that imports were up 15.4% over the same month last year,
while exports grew 13.1%. Continued strong import demand resulting
from the uptick in domestic economic activity has served to further widen
the annual trade deficit, which rose from US$ 1.4 billion in March to US$
1.7 billion in April. Panellists, however, expect the recent
weakening of the exchange rate to improve external accounts. Even
though forecasts for the trade deficit for this year remained unchanged,
the deficit figure for next year has been lowered in this month’s
publication.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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