June 15, 2020 / 12:32 PM / in 19 days

Brazil 2021 interest rate expectations fall sharply - survey

BRASILIA, June 15 (Reuters) - The outlook for Brazilian interest rates next year has fallen sharply, a central bank survey of economists showed on Monday, as the economy heads for a deep recession and inflation significantly undershoots official targets.

The central bank’s benchmark Selic rate is now expected to end next year at 3.00% compared with a forecast of 3.50% the week before, with end-year inflation at 3.00% compared with 3.10%, according to the latest weekly ‘FOCUS’ survey.

The central bank’s rate-setting committee known as Copom is expected to lower the Selic rate by 75 basis points to a new low of 2.25% on Wednesday, and gradually start raising it again next year.

The ‘FOCUS’ survey showed the 2020 economic outlook deteriorating for an 18th straight week, albeit by a tiny margin. Latin America’s largest economy is now expected to shrink by a record 6.51% compared with 6.48% last week.

The average 2020 inflation forecast broke a 13-week run of declines, edging up to 1.6% from 1.53%. But that is still well below the central bank’s official goal of 4.0%, while the new 2021 forecast of 3.0% is also below the official target of 3.75%.

Among the survey’s other findings, economists continued to make significant adjustments to their 2020 current account deficit and government budget deficit estimates.

They now expected a current account deficit of $13.95 billion this year, down from $20.5 billion last week and $35.9 billion a month ago. They also project a primary budget deficit of 10% of gross domestic product, compared with 8% last week. (Reporting by Jamie McGeever Editing by Chizu Nomiyama)

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