Tuesday, 3 February 2009

Morgan Stanley Bets on Massive Brazil Interest-Rate Front-Loading

Morgan Stanley's Brazil economist Marcelo Carvalho is betting on a more proactive approach by Banco Central do Brasil. The first economist I remember saying that Brazil would fall into recession by the fourth quarter of 2008 is now wagering that Brazil is fully into the global monetary easing cycle after last week's larger-than-expected rate cut. He says ''in light of this aggressive policy action and subsequent dovish policy minutes, we are cutting our interest rate forecast´´ that will bring a 400 basis-point (from 200 basis points before) for the 2009 year. ''We look for three consecutive rate cuts of 100 basis points each, on top of January’s initial 100 point cut already implemented.´´ Thus, the Selic rate target should fall to 9.75 percent by mid-2009 from the 11.75 percent previously forecast, staying there through year-end.

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