Brazil Rate Seen Sliding to Single Digits

Brazil’s central bank is poised Wednesday to cut rates by 50bp-100bp from 10.25%, say analysts. “We suspect the release a weak 2009 Q1 real GDP growth reading on June 9 could tip the balance in favor of a 100bp move to 9.25%,” says Morgan Stanley, adding that the rate could reach single digits “for the first time in recent history.” HSBC expects 75bp easing and Bulltick forecasts 50bp. HSBC expects the Selic to hit 9.0% by July and to remain unchanged during 2010. Bankers expect lower rates to catalyze a big shift into Brazilian equity by domestic retail and mutual funds. Brazilian asset managers are liquid but have limited exposure to stocks, leaving significant room for upside.