Monday, 12 January 2009

IDEAGlobal Sees Larger Brazil Rate Cut;

Analysts at IDEAGlobal, the New York-based market research company, are beginning to forecast a larger cut for Brazil's Selic benchmark interest rate target than previously expected. Whereas Brazil's industrial production fell by 6.2 percent in November on a year-on-year basis and car production staged a record 54 percent plunge, slowing inflationary pressures is also paving the way for Banco Central do Brasil to assume a more aggressive easing action on Jan. 21. ''We have revised our call on the Copom's upcoming decision to a 75 basis-point cut to 13 percent (previous forecast was 50 basis points to 13.25 percent), yet would not be surprised to see the BCB cut 100 basis points,´´ IDEAGlobal says in a report distributed to clients last night.

On the inflation front, price increases staged a dramatic slowdown in the last three months on the back of weaker economic activity and a significant contraction in credit activity, IDEAGlobal says. The BCB is, therefore, running out of excuses not to implement a more lax interest rate policy.

Because the outlook is deteriorating, it is clear that the most recent economic readings point to an additional element of pressure upon central bank board members -- politics. The climate in Brasilia ''isn't any good at all, it's worrisome,´´ according to a leading ruling party lawmaker who spoke in the condition of anonymity to this blog on Friday. Politicians will likely this week begin to press the BCB to undertake faster and more decisive actions to ease the impact of the credit crisis on the $1 trillion economy, the lawmaker said. BCB President Henrique Meirelles (photo) is probably going to be more flexible this time -- remember that the number of analysts forecasting growth stalling in the first half of the year is growing by the day.

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