February 3, 2020 / 12:43 PM / 21 days ago

Brazil inflation, rate outlooks dip despite record low exchange rate - survey

BRASILIA, Feb 3 (Reuters) - The Brazilian real’s slide to its weakest level on record is not fueling expectations of higher domestic inflation or interest rates, a central bank survey of economists showed on Monday.

Quite the opposite.

According to the Brazilian central bank’s latest weekly survey of around 100 economists, inflation expectations for this year slipped to a new low of 3.40% from 3.47% the week before, and the outlook for interest rates next year dipped to 6.25% from 6.50%.

This marked the fifth week in a row that the average 2020 inflation forecast has fallen, while the 2021 average forecast for the benchmark Selic rate was 6.50% only four weeks ago.

The real slumped to a fresh record low of 4.2862 reais per dollar on Friday, chalking up its third-largest monthly fall since the 2015-16 recession as traders tested the central bank’s resolve not to intervene in the face of the depreciating exchange rate.

The bank’s rate-setting committee known as Copom is expected to reduce the Selic rate by a quarter of a percentage point to 4.25% on Wednesday. Policymakers have said they are relaxed about inflation, noting little ‘pass through’ to consumer prices from the weak exchange rate.

The central bank’s 2020 inflation target is 4.00%. Copom is expected to raise rates next year as economic growth picks up, although the latest survey suggests that tightening cycle will be shallower than thought only a few weeks ago. (Reporting by Jamie McGeever; Editing by Alex Richardson)

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