The Central Bank (BC) has revised upwards its projections for the variation of the Extended Consumer Price Index (IPCA) in 2013 and in the coming years Inflation in Brazil will remain stubbornly high well into 2015 even as the economy struggles to gain steam, the central bank said on Monday, raising market bets for higher borrowing costs in the future.
In its quarterly inflation report, the bank lowered its 2013 inflation forecast to 5.8 percent from 6 percent previously. However, it revised its inflation view for 2014 to 5.7 percent from 5.4 percent previously and said it expects inflation at 5.5 percent in the third quarter of 2015.
The bank also revised down its estimate for economic growth to 2.5 percent for this year from a previous 2.7 percent forecast. The bank sees growth keeping that pace until the second quarter of 2014.
The projections for quickening inflation sparked a rally in the Brazilian currency, the real, as well as interest-rate futures as investors increased bets on a longer monetary tightening cycle that would bring more U.S. dollars into the economy.
Central bank director Carlos Hamilton Araujo added to the rally with hints of further rate hikes, saying there was "a lot of work to be done" in monetary policy to battle inflation.
Source: Reuters
