July 3, 2017 / 2:09 PM / a year ago

UPDATE 1-Brazil's inflation forecasts drop after target cut

 (Recasts with 2019, 2020 inflation forecasts, background on
    BRASILIA, July 3 (Reuters) - Inflation expectations dropped
in Brazil after the government reduced its target for the first
time in more than a decade, a survey showed on Monday,
suggesting policymakers can cut interest rates this year at an
even faster pace than expected without putting the new goals
into question.
    Market forecasts for the inflation rate in 2020 dropped to
4.00 percent, matching the new official target, from a previous
estimate of 4.25 percent, according to the median estimate of
about 100 economists surveyed weekly by the central bank.
    For 2017 and 2018, when Brazil's target remained at the
long-held 4.5 percent, economists expect an inflation rate of
3.46 percent and 4.25 percent, respectively, down from a
forecast of 3.48 percent and 4.30 percent previously.
    Estimates for the 2019 inflation rate remained unchanged at
4.25 percent, the new goal for that year.
    Well-anchored inflation expectations have helped the central
bank cut interest rates to help the economy emerge from its
worst recession on record. Policymakers have slashed the
benchmark Selic rate by 400 basis points since October, to 10.25
percent, and are expected to cut it further until it reaches
8.25 percent by December, according to the weekly poll.
    Until last week, economists had expected the central bank to
cut the Selic rate to 8.5 percent this year.
    Brazil lowered its annual inflation target on Thursday,
seeking to turn the page on recent double-digit jumps in
consumer prices. Latin American countries such as Mexico and
Chile target inflation at 3 percent.             
    Growing investor optimism about Brazil's economic prospects
contrasts with an escalating political crisis that threatens to
remove President Michel Temer from office.
    For a summary of market expectations for the Brazilian
economy, see            

 (Reporting by Silvio Cascione; Editing by Bernard Orr)
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