Brazil real rises from three-year low as central bank intervenes

Growth View

Brazil’s economy will grow 1.27 percent this year and 3.70 percent in 2013, according to the median estimate in a central bank survey of about 100 analysts published today. It was the biggest single-week reduction in 2013 growth forecasts all year. In the previous week’s survey, analysts forecast GDP to expand 1.50 percent in 2012 and 3.94 percent next year.

Growth domestic product increased 0.9 percent in the third quarter from a year earlier, the statistics agency said Nov. 30, trailing the 1.9 percent median forecast of economists surveyed by Bloomberg.

The central bank left Brazil’s target lending rate at a record low 7.25 percent last week, snapping a streak of 10 reductions as they tried to stoke growth in an economy forecast to expand at the slowest pace in three years. They pledged to keep monetary conditions stable for a “prolonged period,” according to a statement accompanying the rate decision.

Economic Stimulus

President Dilma Rousseff’s government has cut taxes and boosted spending over the past 12 months to prop up the economy. While the efforts are keeping retail sales buoyant amid a global slowdown, companies are holding back on investment and industrial production contracted in September for the first time in four months.

Cuts in GDP forecasts are a signal the central bank will keep borrowing costs low for a prolonged period and could even cut rates before raising them, Credit Suisse’s Berg said. The bank revised down its 2012 GDP forecast to 1.1 percent last week, from a previous forecast of 1.5 percent.

“It looks unlikely the central bank will increase rates anytime soon,” Berg said. “The stimulus is working and it’s the right stimulus but it takes time. Brazil’s economy is driven strongly by domestic demand and credit and now you’re repositioning for more growth in investment, exports. That restructuring of the economy takes time.”

Bloomberg News

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