International Trade and Ports

Itau Sounds Brazil Slowdown Alarm as 12% Rates Dismissed

By Matthew Malinowski

Latin America’s largest bank is clashing with traders and economists by predicting the economic slowdown in Brazil will prevent its central bank from raising interest rates through next year.

Itau Unibanco Holding SA said July 11 it no longer anticipates any rate increases as data from lower business confidence to a weaker labor market suggest the region’s largest economy shrank last quarter for the first time in almost a year. Swaps trading and results from a weekly central bank survey of 100 analysts show that policy makers will boost rates one percentage point to 12 percent by the end of 2015.

With benchmark borrowing costs that are already the highest among rate-setting nations in the Group of 20 and surging consumer prices, Brazil’s $2.25 trillion economy will expand 0.7 percent this year, less than at any time since the recession in 2009, according to Itau’s forecasts. The growth projection would match the lowest among 33 firms surveyed by Bloomberg.

“As we are seeing weaker economic activity than we imagined, keeping the key rate at 11 percent is enough for where the central bank wants to go,” Itau economist Caio Megale said by phone from Sao Paulo. “The current interest rate level is not high enough to lead to a recession and a great drop in inflation. It is sufficient to bring prices down.”

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