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Brazil – The economy very vibrant despite EU crisis

Brazil is “well prepared” for possible Euro debt crisis spill over

Brazil is well prepared for any negative spillover effects from the EU debt and Euro crisis, although things “could be worse”, according to Brazilian Central Bank president Henrique Meirelles currently in New York.

“It is business as usual in Brazil, but we are watching the situation closely” Meirelles said. “Things could get worse; we work to prepare for the worst case, but hope for the best case”

But Meirelles stressed that EU and the European Central bank were ”on top of things“ and warned against ”premature“ expectations of more serious spillover effects on other economies.

Brazil’s ”high level of reserves and high level of reserve requirements“ will help the country weather the storm in the event that the Euro zone peripheral crisis broadens, Meirelles said.

In addition, Brazil’s economy has ”robust growth led by domestic consumption,“ with growth solid enough that ”most of the fiscal stimulation has been withdrawn.“
”Definitely, we are today better prepared as opposed to the post-Lehman crisis,“ the central bank governor said. ”We faced in 2008, the most severe balance of payment crisis since 1929. We did well in retrospect.”

Economists in a weekly Central Bank survey lifted their forecasts for inflation and expansion in Brazil in 2010 on expectations growth in Latam’s largest economy will pressure consumer prices.

Economists forecast the benchmark IPCA inflation index at 5.54% in 2010, compared with the 5.5% forecast a week earlier, according to the central bank weekly survey.
Brazil’s GDP is seen expanding 6.30% this year, compared with a 6.26% forecast previously.

Economists have raised their 2010 inflation forecasts for 17 straight weeks, while GDP growth estimates have been rising for nine weeks, underscoring expectations the Central Bank will raise borrowing costs further after raising the benchmark Selic rate last month for the first time in almost two years.

Estimates for the benchmark Selic interest rate at the end of 2010 were kept unchanged at 11.75%. The Selic was raised last month to 9.5% from an all-time low of 8.75%.

The Central Bank has a 4.5% inflation target for 2010 and 2011, plus or minus 2 percentage points.

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