Bloomberg News

Brazil Posts Biggest Primary Budget Surplus Since April

November 25, 2011

(Updates with analyst comment in third paragraph.)

Nov. 25 (Bloomberg) -- Brazil’s October budget surplus before interest payments was the biggest since April, providing support for policy makers trying to cool above-target inflation.

The primary surplus, which includes federal and local governments as well as state companies, rose to 14 billion reais ($7.4 billion) from 8.1 billion reais in September, the central bank said in a statement distributed today in Brasilia. The figure was less than the median forecast of 16.3 billion reais from 14 economists surveyed by Bloomberg. The accumulated surplus for the year was 118.6 billion reais, equivalent to 93 percent of the year’s fiscal target.

“This figure reinforces the central bank’s approach in terms of interest rates,” said Flavio Serrano, senior economist at Espirito Santo Investment Bank, speaking by phone from Sao Paulo. “They are saying the primary surplus has been strong, so this should restrain domestic demand.”

The central bank’s forecast that inflation will slow to its 4.5 percent target by December 2012 assumes that the government will hit its budget targets this year and next. Central bank President Alexandre Tombini said in a speech last night that the current process of “fiscal consolidation” is helping cool demand and contain inflationary pressures.

After interest payments, the budget deficit was 6.3 billion reais. President Dilma Rousseff’s 2012 budget proposal, presented to Congress in July, targets a surplus before interest payments of 139.8 billion reais for the federal, state and local governments, up from 127.9 billion reais this year.

Miss the Target

Serrano expects the government to miss its fiscal target next year, as a 14 percent jump in the minimum wage boosts social security payments and the country prepares for the 2014 World Cup and the 2016 Olympic Games.

Tombini and Finance Minister Guido Mantega have repeatedly said that Brazil should strive to keep spending under control even if the world economy deteriorates.

Net debt rose to 38.2 percent of gross domestic product in October, from 37.2 percent in September, as a stronger real reduced the value of Brazil’s dollar assets. The central bank expects the ratio to fall to 36.8 percent in November, said Tulio Maciel, the central bank’s head of economic research. Currency movements have been the most important reason for fluctuations in the debt-to-GDP ratio in recent months, Maciel told reporters in Brasilia.

‘Substantial Deterioration’

The central bank began slashing borrowing costs in August to protect Brazil from what it called a “substantial deterioration” in the world economy. More than $4 trillion has been wiped off world stock markets this month as European debt turmoil spread, and yields on Italian and Spanish sovereign debt rose to euro-era highs.

Consumer price rises slowed for a second straight month in mid-November, to 6.69 percent, in line with the central bank’s forecast that inflation peaked in the third quarter. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

The yield on the interest rate futures contract maturing in January 2012, the most traded in Sao Paulo today, rose 4.4 basis points, or 0.044 percentage point, to 10.9 percent at 12.24 p.m. Brasilia time. The real appreciated 0.4 percent to 1.9005 per dollar.

Traders are split on whether the central bank will cut the benchmark Selic rate by 50 or 75 basis points at next week’s policy meeting, from 11.5 percent today.

Tax revenue rose 16.7 percent in October from a year earlier, to 88.7 billion reais, as unemployment fell to a record low for the month of 5.8 percent.

--Editors: Harry Maurer, Bill Faries, Philip Sanders

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

To contact the editor responsible for this story: Philip Sanders at

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