According to the private bank, Brazil will suffer lower growth and higher inflation in 2012 than previously expected. Here is from a recently revised economic outlook released today:

“We have revised our forecasts for interest rates, the exchange rate, growth and inflation. We now believe that the Selic will fall to 7.75%, instead of 8.5%. We now project the exchange rate at 1.85 reais per dollar by end-2012 and 1.87 by end-2013 (up from 1.75 for both years). We have reduced our forecast for GDP growth in 2012 to 3.1% (from 3.5%) but have kept our 2013 forecast at 5.1%. We have slightly raised our IPCA inflation forecasts to 5.2% (from 5.1%) for 2012 and to 5.7% (from 5.6%) for 2013.

The government brought a new outlook to monetary policy early this month when it changed an important regulation covering Brazil’s financial market. From now on, returns on regulated savings accounts – the poupança – will track the Selic rate, at a 30% discount, whenever the Selic falls below 8.5%. By eliminating poupança’s 6% floor, the government removed the risk that investors could migrate from Treasury bonds to savings accounts if the Selic falls below a borderline level of around 8.5%. The new poupança rules have cleared the way for more rate cuts.

Given the Central Bank’s views on inflation and activity, we believe that it will push the Selic down to 7.75%, going beyond our previous forecast of 8.5%. The path towards 7.75% should be through two 50-bp moves in May and July, and a final 25 bp-cut in August.”

Find below their Brazil macro forecasts…

Source: Itau BBA

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