Brazil Economists Forecast Slower Inflation on Stronger Currency

(Bloomberg) -- Brazil economists reduced their 2016 inflation forecast for the first time in seven weeks as they foresee a stronger currency this year and next. 

Economists estimate consumer prices will rise 7.27 percent this year, down from the current level of 9.32 percent, according to a central bank survey for the week ending July 1. They also lowered their 2017 year-end inflation forecast for the first time since mid-May, to 5.43 percent. They see the real ending the year at 3.46 per U.S. dollar, from 3.6 the prior week.

There are signs of budding optimism in Latin America's largest economy, including business confidence -- a leading indicator for investment -- surging to its highest level since 2014. That stems from the belief that Finance Minister Henrique Meirelles will achieve policies to right the economy that's mired in a two-year recession.

Brazil's real gained 12 percent in June, the most of 31 major currencies tracked by Bloomberg. Economists in the central bank survey also improved their forecast for the real for end-2017, to 3.7 per U.S. dollar from 3.8 the prior week, even as the central bank last week resumed auctions of reverse currency swaps, derivatives designed to weaken the currency.

Analysts forecast Brazil's economy will contract 3.35 percent this year, versus a prior forecast for a 3.44 percent recession.

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net. To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Walter Brandimarte