Halister News

(Bloomberg) -- Economists at some of the largest banks are cutting their projections for Brazil’s benchmark interest rate. As data show activity still slacking and inflation under control, some of the main forecasters now see the so-called Selic rate finishing the year near or even below its historical low of 7.25%.

• BNP Paribas on Wednesday cut its forecast for Selic this year to 7%, from a previous 8%, citing falling inflation, less fiscal expansion, contractionary credit and progress in pension reform
• Fibra and Safra made similar moves recently, with Safra expecting rate to reach 7% in 1H18
• Itau, Brazil’s largest bank by market value, also trimmed its forecast for the benchmark rate this week and now estimates it will reach 7.5% in October, remaining at that level until the end of 2018; Bank of America also said Selic will reach 7.5% this year
• Bradesco, Brazil’s second largest private bank, cut its projection for the rate in 2017 to 8%, from 8.5%
• Many analysts condition lower rates to approval of pension reform; However, for Tony Volpon, UBS Brazil chief economist and former BCB director, policy makers shouldn’t base rate decisions on pension reform approval schedule 
  • UBS hasn’t yet changed its call for a 100bps rate cut in next BCB meeting, but Volpon says there’s a chance for a 125bps reduction
• Isabela Guarino, an economist at XP Gestao de Recursos, also predicts the rate at 7.5% at the end of the cycle, but says ; At some point in 2019, however, she expects the BCB to raise interest rates again as level not sustainable in the long run
• Future interest contracts show market now pricing in cut of 125bps in next Central Bank meeting, scheduled for May 30-31
  • So- called DI swap contracts show market expects Selic to be at 8.25% at the end of the year

--With assistance from Ana Carolina Siedschlag and Julia Leite. To contact the translator on this story: Julia Leite in Sao Paulo at jleite3@bloomberg.net Reporters on the original story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Patricia Lara in Sao Paulo at plara6@bloomberg.net Editors responsible for the original story: Daniela Milanese at dmilanese@bloomberg.net Ney Hayashi