By Marcela Ayres
BRASILIA (Reuters) -Brazil’s economy powered through the first quarter, defying high borrowing costs thanks to a bumper grain harvest and growth in the industrial sector, central bank data showed on Monday.
The IBC-Br economic activity index, regarded as a proxy for gross domestic product (GDP), grew 1.3% in the January-to-March period from the previous quarter.
Analysts had previously projected that Latin America’s largest economy would reap substantial gains from its sizable soybean harvest, which typically occurs early in the year. The agricultural component of the index rose 6.1% in the last quarter.
Even stripping out that boost, economic activity still increased 1.0% from the previous quarter, driven mainly by industrial growth of 1.6%, according to the central bank’s methodology.
This shows monetary policy still has work to do, said Francisco Lima Filho, an economist at Banco ABC Brasil.
He expects the central bank to raise interest rates by further 25 basis points at its June policy meeting, while most economists now anticipate no change.
Beyond farming and factories, the central bank’s index also captures services output and tax data on production, both of which grew 0.7% from the final three months of the year, reflecting resilient consumer spending amid a tight labor market.
“Numbers today convinced us to push up the first quarter GDP forecast. From a still strong growth of 1% quarter over quarter to 1.3%, given the intense performance of not only agriculture but also all other main macro sectors,” economists at UBS BB said in a note to clients.
Official first-quarter GDP figures are scheduled to be released on May 30 by Brazil’s statistics agency, IBGE.
The positive numbers came even as the central bank pressed on with its aggressive inflation-fighting drive.
By March, the bank had lifted interest rates by 375 basis points since kicking off the tightening cycle in September, and added another 50 basis points in May, taking borrowing costs to 14.75% – Brazil’s highest in almost 20 years.
In March alone, the IBC-Br rose a seasonally adjusted 0.8% from February, topping the 0.5% increase forecast in a Reuters poll.
(Reporting by Marcela Ayres; Editing by Mark Heinrich and Aurora Ellis)
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