Brazil”s Central Bank Cuts 2015 GDP Forecast, Raises Inflation Forecasts

A political crisis threatens President Dilma Rousseff.

The central bank has undertaken similar measures in the past.

The central-bank forecast for both years put inflation above its inflation central target of 4.5%.

The news of late has been focused primarily on the Federal Reserve and its decision to leave interest rates at zero for the time being.

Some economists warned the central bank risked putting the real under more pressure if it does not raise interest rates at its next scheduled rate-setting meeting on October 21. Brazil’s main stock index was down about 1.0 percent, although it roughly halved an earlier loss that had sent it to a one-month low. Its projection of contraction in the Gross Domestic Product (GDP), the sum of all goods and services produced in the country, has been revised down from the 1.1% forecast it had released in June to 2.7%, as per the Inflation Report issued this Thursday (24th).

The monetary authority’s view of inflation for this year and next year also worsened.

The government statistics office, meanwhile, said unemployment rose to 7.6 percent in August, the eighth consecutive monthly increase and up from 4.8 percent at the end of 2014.

The crisis has fueled concern that another credit rating agency will follow Standard & Poor’s example and cut Brazil’s rating to junk status, forcing many global funds to dump its bonds from their portfolios.

Roussef’s efforts to shore up deteriorating government finances will face a major test on Wednesday, when Brazil’s Senate votes on whether to overturn presidential vetoes aimed at averting a surge in public spending.

To restore Brazilians’ faith in their currency, a group of economists established a make-believe currency that was linked to the dollar and remained stable in spite of the jittery cruzeiro.

Five-year credit default swaps (CDS) rose 33 basis points from the previous close to 513 bps, according to data from Markit.

Brazil has been hit hard by the sudden dive in commodities prices and the economic slowdown in China.