Global Equity Brazil

04.19.2010 - Brazil Analysts See Higher Rate in 2010

Brazilian policy makers will need to raise the benchmark interest rate more than initially expected by analysts as inflation outlook worsens, according to a weekly central bank survey.

Economists covering Latin America's biggest economy forecast policy makers will lift the overnight rate to 11.50 percent by year end from a record low of 8.75 percent, according to the median forecast in an April 16 survey of about 100 economists published today. A week earlier, they expected the Selic at 11.25 percent by December.

Domestic demand, fueled by rising employment, will help fuel the second-fastest economic expansion in more than two decades this year, the survey shows. Inflation in 2010 will quicken to 5.32 percent, exceeding the central bank's 4.5 percent target.

"We may end the year creating 2 million jobs or even a bit more," President Luiz Inacio Lula da Silva said in his weekly radio program today. "As people buy more, retailers sell more industry is forced to produce and everyone is forced to hire more workers."

Economists have raised their 2010 inflation outlook in each of the past 15 weeks, the central bank survey shows. They have also raised their 2010 economic growth forecast for the past five weeks, bringing it up to 5.81 percent.

Brazilian central bank President Henrique Meirelles said in an April 13 interview that his challenge is to prevent Latin America's biggest economy from "overheating" as increasing domestic demand fuels the best growth outlook he's ever seen.

Yields on fell, with the contract due January 2011, the most traded on Sao Paulo's BM&F exchange, declining one basis point, or 0.01 percentage point, to 10.69 percent at 8:12 a.m. New York time.

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