Bloomberg News

Tombini Says Brazil to Meet 4.5% Inflation Target in 2012

August 01, 2011

(Updates to add Tombini quote in third paragraph.)

Aug. 1 (Bloomberg) -- Brazil will succeed in slowing inflation back to its 4.5 percent target next year as measures to curb price increases are already working, central bank President Alexandre Tombini said today.

The central bank’s fight against inflation is being backed by fiscal policy, and credit expansion has slowed, Tombini told business leaders in an event in Belo Horizonte.

“Macroprudential measures over the course of 2011 are taking effect,” Tombini said. “Credit continues to grow in a sustainable way, a healthy way, which does not impose extraordinary risks to financial stability.”

Analysts are skeptical President Dilma Rousseff’s administration will attain the 4.5 percent goal, after the bank signaled last week it may soon stop raising interest rates. Economists raised their 2013 inflation forecast for the first time, according to a central bank survey published today.

The central bank boosted its benchmark lending rate for a fifth straight meeting July 20, after inflation accelerated to a six-year high in mid-July. In a statement accompanying the decision, policy makers withdrew a commitment to raise rates for a “sufficiently long” period, leading traders to increase bets that the bank will hold the rate unchanged at 12.50 percent for the rest of year.

Faster Inflation

Consumer prices will rise 4.51 percent in 2013, compared with a 4.5 percent forecast in all surveys since 2009, according to the central bank survey. Analysts also raised their 2012 inflation forecast for a second straight week to 5.30 percent from 5.28 percent, the survey shows.

“It’s not a good sign,” Zeina Latif, chief economist at RBS Securities Inc, said in a phone interview from Sao Paulo. “It means more people are expecting inflation above the mid- point of the target in 2013.”

President Dilma Rousseff told local newspapers last week the government is seeking a “soft landing” that will bring inflation back to it 4.5 percent target without halting economic growth. At the same time, the central bank inflation forecasts show consumer prices “around” the target only in the first half of 2013, the minutes of its July meeting show.

The yield on interest rate futures contracts maturing in January 2012, the most traded in Sao Paulo, fell one basis point to 12.45 percent at 9:08 a.m. New York time. The real gained 0.1 percent to 1.5471 per U.S. dollar.

Consumer prices rose 6.75 percent in the year through mid- July. Economists in today’s survey held their prediction for 12- month inflation unchanged at 5.4 percent.

Unlike traders, economists still see the central bank raising the Selic rate once more this year, to 12.75 percent, according to today’s survey. They lowered their forecast for the benchmark rate at the end of 2012 to 12.50 percent from a week earlier forecast of 12.75 percent.

Economists raised their forecast for economic growth to 3.96 percent this year, from 3.94 percent a week earlier, and left unchanged their call for 4 percent growth in 2012.

--Editors: Harry Maurer, Richard Jarvie

To contact the reporters on this story: Alexander Ragir in Rio De Janeiro at aragir@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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