Morgan Stanley Lifts Brazil Forecasts

Morgan Stanley has improved its forecasts for Brazil GDP and the BRL. In 2009, the shop sees GDP flat. It previously thought it would drop 0.5%. In 2010, it now sees GDP increasing 4.8%, from a previous estimate of 3.5%. The BRL’s outlook has also improved, to BRL1.80 per USD from BRL1.90 in 2009 and to BRL1.70 from BRL1.80. The more positive forecasts coincide with higher rates and stronger capital inflows, the shop says. It now expects the central bank to begin hiking the monetary policy rate before mid-2010, around April. Previously it expected hikes to begin in Q2 2010. “With an earlier start to the hiking cycle, we now see policy interest rates at end-2010 at 11.00%, from 10.00% in our previous forecast. The current policy rate is 8.75%,” the shop says. It adds that “looking ahead, our forecast assumes net FDI inflows of $25bn for 2009 as a whole, in line with the central bank’s own working assumption. We look for a FDI recovery to $30bn next year.”