Economists covering Brazil's economy cut their 2014 growth forecast to slowest-ever 1.62% as central bank raises interest rates to tame inflation

Cindy Allen

May 19, 2014 (Bloomberg LP) – Economists covering the Brazilian economy cut their 2014 growth forecast to the slowest ever as the central bank raises interest rates to tame inflation.

Latin America’s biggest economy will expand 1.62 percent this year, compared with the previous week’s forecast of 1.69, according to the May 16 central bank survey of about 100 analysts published today. Inflation will quicken to 6.43 percent by year end, the survey also showed.

President Dilma Rousseff’s administration has been struggling to revive growth as above-target inflation slows demand. Economic activity as reported by the central bank contracted in March, as retail sales and industrial output shrank. Traders expect the central bank to hold interest rates unchanged this month after raising it nine consecutive times, swap rates show.

Retail sales in March unexpectedly contracted from February as sales at supermarkets and supermarkets declined, the national statistics agency said on May 15. The government reported a week earlier that industrial production fell in the same month on a drop in capital goods output.

Brazil’s consumer inflation as measured by the benchmark IPCA index decelerated in April to 0.67 percent from 0.92 percent the month prior. Still, annual inflation quickened to 6.28 percent from 6.15 percent. Annual inflation has remained above the central bank’s 4.5 percent target during Rousseff’s entire term.

The central bank on April 2 raised the Selic by 25 basis points to 11 percent, marking the ninth straight rate increase in efforts to slow consumer prices. That’s the highest borrowing cost level in two years, and the most among major rate-setting nations in Latin America, according to data compiled by Bloomberg.

--With assistance from Ainhoa Goyeneche in Washington.

To contact the reporters on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net; Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net

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