SAO PAULO – Banco Santander (BSBR) reduced its forecast for Brazil’s inflation rate this year to 5%, from 5.5% previously, as it expects the rise in regulated prices to slow, the bank said Monday.
“This downward revision is being driven mostly by regulated prices, for which we expect a 2.6% advance in 2012 (from our previous expectation of 4%), mainly due to the likely decline in electricity prices in Sao Paulo. (Brazil’s largest city),” Santander’s economist team said in a research report.
“Additionally, fuel price behavior will likely be more benign than we were anticipating this year. Neither of these factors is likely to favor inflation next year, and, as a result, we expect inflation to pick up, closing 2013 at 6%,” it added.
Brazil’s inflation rate reached 6.50% last year, the highest since hitting 7.6% in 2004.
Banco Santander also adjusted its view for the benchmark Selic interest rate.
“We maintain our view that the central bank will promote two additional rounds of monetary easing, bringing the Selic rate to 9.5% per year in April, a level at which it is likely to remain until at least end-2013,” the bank said.
“Previously, we expected a mild increase in the target overnight rate around the second quarter of 2013. In light of recent central bank communication, we now expect that the monetary authority may rely more on macro prudential measures, rather than on an increase in interest rates if the central bank decides to tighten the monetary policy,” it added.
