Economists see Brazil able to cut rates by 150 basis points by February 2012
- Brazil's inflation target forecast to be met in 2013, according to Santander
- Growth seen slowing to 2.1% in 2012 on waning export demand, the economists said
SAO PAULO -(Dow Jones)- Slower global growth will allow Brazil to begin cutting its towering interest rates starting in November, Banco Santander economists wrote.
With global economic growth expected to slow to 3.3% this year and bounce back somewhat to 4.4% in 2012, Brazil will have room to cut rates by 150 basis points by February, Mauricio Molan and Tatiana Pinheiro wrote in a note dated Monday.
"Concerns regarding economic growth in Brazil will increase markedly in following months," they wrote. "Under this new information set, policymakers tend to be less worried regarding prospects for inflation than with economic activity."
According to Santander, the central bank's inflation target of 4.5% will be reached only in 2013. The rate of inflation is currently at 6.87%, above the central bank's target band of 4.5% plus or minus two percentage points. Economic growth, meanwhile, is expected to slow to 2.1% next year--from a previous forecast of 4%--as export demand wanes.
Brazilian President Dilma Rousseff said Tuesday that her government is creating conditions for interest rates to fall and that lower rates are needed to help spur the nation's economy. The government said Monday it was reducing planned spending for this year by an extra 10 billion Brazilian reais ($6.3 billion).
"These 10 billion we prefer to use to open a new path, in addition to the path of increasing investment, it's a path that we think is very important: we want from here on out to have on the horizon the possibility of reducing interest rates in Brazil," Rousseff said during a radio interview, according to government news agency Agencia Brasil.
Brazil's central bank meets Wednesday to decide what to do about the country's 12.5% benchmark interest rate. Most economists expect the rate to remain unchanged after five consecutive increases.
The global economic outlook has "deteriorated significantly" as initial expectations of a recovery from the 2008 financial crisis failed to materialize, Central Bank International Affairs Director Luiz Pereira said on Saturday.
At its last meeting, the bank noted that commodity prices had "accommodated" and removed language of a "sufficiently prolonged" rate-adjustment cycle, leading many to believe that slowing global growth allows the bank to reverse its course.
"The events seen in recent weeks show that the initial bet didn't take form and that the international outlook is unfolding along its negative path," Pereira said Saturday.
Source:nasdaq