Bloomberg News

Tombini Says Moderate Rate Cuts in Line With Brazil CPI Goal

November 17, 2011

(Updates with Tombini comment in third paragraph.)

Nov. 16 (Bloomberg) -- Brazilian policy makers’ forecast of a “rapid and substantial” deterioration in the world economy is being realized, meaning that “moderate” cuts in the benchmark Selic rate are consistent with hitting the inflation target in 2012, central bank President Alexandre Tombini said.

Another central bank prediction, that inflation would peak in the third quarter and then “fall sharply” by the second quarter of 2012 is also coming true, after the annual inflation rate fell in October, Tombini said at an event in Brasilia.

“As new information is divulged, we see our base scenario being confirmed,” Tombini said. “In this sense, our base scenario contemplates moderate adjustments in the Selic rate, an action that is consistent with inflation returning to its target in 2012.”

Tombini cut the Selic rate to 11.5 percent from 12 percent last month, saying the deterioration in the world economy will curb inflation, even with lower borrowing costs. Traders are wagering that the central bank will cut rates another 1.75 percentage point by May, according to Bloomberg estimates based on interest rate futures contracts.


Tombini’s repetition of the word “moderate” is a signal that the central bank has not altered its plan to cut borrowing costs by 0.5 percentage point at its November policy meeting, said Zeina Latif, senior economist with RBS Securities Inc. in Sao Paulo.

“They are basically saying that they correctly anticipated a crisis,” Latif said in reply to an e-mailed question. “This could hit Brazil via several channels: eroding business confidence, probably reducing bank lending and hitting commodity prices and exports,” Latif said.

Latif expects the central bank to cut interest rates by 0.5 percentage point at each of its next three meetings.

Consumer prices rose 6.97 percent in October from a year earlier, down from 7.31 percent the previous month, the first decline in the inflation rate in 14 months.

Brazil targets inflation of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range for the last seven months.

Market View

“Given the pro-active character of the central bank’s actions, sometimes time is needed for the scenarios to be clear, and corroborate the timely decisions taken by the monetary authority,” Tombini said.

The yield on Brazil’s interest rate future contract maturing in January 2012 rose two basis points, or 0.02 percentage point, to 11.03 percent at 2:13 p.m. New York time. The real weakened 0.2 percent to 1.7696 per U.S. dollar.

Analysts covering Brazil expect inflation to remain above the mid-point of its target until 2014, according to the most recent weekly central bank survey of economists.

The central bank last week unwound most of the credit curbs that it imposed last December on auto loans, personal loans and payroll loans.

The extra yield investors demand to hold 10-year bonds from France, Belgium, Spain and Austria instead of German bunds all hit euro-era records this week as European debt turmoil spread.

--Editors: Harry Maurer, Robert Jameson, Philip Sanders

To contact the reporter on this story: Matthew Bristow in Brasilia at

To contact the editor responsible for this story: Harry Maurer at

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