Brazil economists lower interest rate forecast

SAO PAULO: Brazilian economists lowered their forecasts for interest rates this year, foreseeing no more rate hikes in 2011 or 2012, according to a weekly central bank survey published on Monday.

The survey comes at the start of a week in which a US sovereign debt downgrade and an ongoing euro zone debt crisis are expected to roil markets and stoke fears of sluggish global economic growth for months or even years to come.

Local analysts now see the benchmark Selic interest rate steady at 12.50 percent all the way through the end of 2012, down from an expectation of 12.75 percent at the end of 2011.

The economists also slightly lowered their view for inflation, seeing the benchmark IPCA index at 6.28 percent this year from 6.31 percent previously.

For next year, they forecast an IPCA of 5.27 percent from 5.30 percent seen previously.

The central bank targets an IPCA of 4.5 percent, plus or minus 2 percentage points. The IPCA rose 6.87 percent in the 12 months through July, but the central bank expects that rate to fall as of September.

The United States and the euro zone are among the world's largest economies. Should credit markets freeze and hobble expansion there, global growth could be hurt as a result, with export markets lackluster.

The survey's predictions represent the median forecast of analysts polled by the central bank at about 100 financial institutions.

Economists in the survey also forecast gross domestic product growth of 3.94 percent this year, edging down from a forecast of 3.96 percent last week. For next year, economists see GDP expansion of 4 percent.

Copyright Reuters, 2011