The market expects the Selic rate to rise only in May.
According to the Central Bank's Focus survey, released this Monday, analysts maintained their expectation that the benchmark interest rate will remain at 7,25% at this week's Copom meeting; however, the market now anticipates a more significant increase next month, when the monetary tightening cycle is expected to begin.
By Camila Moreira
SAO PAULO, April 15 (Reuters) - The market maintained its expectation that the Selic rate will remain at 7,25 percent at this week's meeting of the Monetary Policy Committee (Copom), but now anticipates a more significant increase in the benchmark interest rate in May, when the monetary tightening cycle is expected to begin, according to the Central Bank's Focus survey released on Monday.
Analysts surveyed now expect the Selic rate to rise 0,50 percentage points at the May meeting, to 7,75 percent, compared to the 7,50 percent estimated in the previous survey.
The Copom (Monetary Policy Committee) meets on Tuesday and Wednesday of this week to define the next steps in monetary policy. Although the Focus survey expects the rate to remain unchanged at this meeting, the interest rate futures market had already increased bets at the end of last week on the start of a tightening of the monetary cycle this week.
This perception intensified after statements by the president of the Central Bank, Alexandre Tombini, and the Minister of Finance, Guido Mantega. Tombini stated on Friday that there will be zero tolerance for inflation and that the monetary authority is "closely" monitoring all indicators. This led some analysts to even reassess their projections, which may not have been captured in this survey.
In turn, the Focus report showed that analysts maintained their expectation that the Selic rate will end this year at 8,50 percent, the same rate that will remain unchanged throughout 2014, according to projections released this Monday.
GROWTH VS. INFLATION
The Central Bank faces a dilemma at the moment with high inflation and recent signs that have reinforced the scenario of fragility in the Brazilian economic recovery.
Despite this, the analysts consulted in the Focus survey maintained their projection of 3,00 percent growth in Gross Domestic Product (GDP), unchanged from the previous week. The outlook for 2014 also remained unchanged at 3,50 percent growth.
On the other hand, signs of a slowdown in Brazilian inflation led the market to reduce its projection for the IPCA increase this year to 5,68 percent, compared to 5,70 percent in the previous survey. The outlook for 2014 remained at 5,70 percent.
In March, the IPCA accumulated a 6,59 percent increase over 12 months, exceeding the government's target ceiling, but slowed to 0,47 percent during the month.
The rise in prices influenced the 0,4 percent drop in retail sales in February compared to January, with the sector registering its first annual decline since November 2003, of 0,2 percent.
The current scenario also shows difficulty in industrial production taking off, having registered a decline of 2,5 percent in February.
All of this contributed to the 0,52 percent drop in February in the Central Bank's Economic Activity Index (IBC-Br), considered a kind of indicator of GDP.
In the Focus report, the outlook for industrial production growth this year was maintained at 3,00 percent, as was the projection for the exchange rate at the end of this year, which remained unchanged at 2 reais for the seventh consecutive week.
(By Camila Moreira, edited by Alberto Alerigi Jr.)