Bloomberg News

Brazil Inflation Quickens as Tombini Vows Moderate Rate Cuts

December 09, 2011

(Updates to add minutes in third paragraph.)

Dec. 8 (Bloomberg) -- Brazilian consumer prices rose faster than expected in November, prompting traders to pare bets the central bank will accelerate the pace of interest-rate cuts to fuel economic growth.

Inflation, as measured by the benchmark IPCA index, quickened to 0.52 percent last month from 0.43 percent in October. The gain was more than the 0.5 percent median estimate from 54 economists surveyed by Bloomberg.

Policy makers reiterated today that “moderate” cuts to the benchmark interest rate amid slower global growth and “robust” domestic demand are consistent with its 2012 consumer price target, reinforcing bets they will keep reducing borrowing costs at the current half-point pace. The central bank, which cut interest rates by half a percentage point three times since August, estimates inflation will slow to “around” its 4.5 percent goal next year, according to the minutes of its Nov. 29- 30 board meeting published today on its website.

Central bankers “consider that they’ve already taken measures to keep domestic demand more or less at the same level, despite the global backdrop,” Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc., said in a telephone interview. The minutes, along with today’s faster-than-expected inflation, show that policy makers “don’t feel the need for faster or longer monetary easing.”

The yield on the interest rate futures contract due January 2013, the most traded in Sao Paulo, rose nine basis points to 9.83 percent at 11:18 a.m., as traders moved away from bets the central bank may opt for deeper rate cuts in January. The real rose 0.6 percent to 1.7889 per dollar.

Reignite Growth

President Dilma Rousseff’s administration is trying to reignite growth with a mix of tax cuts, lower borrowing costs and credit stimulus. Gross domestic product shrank for the first time in 10 quarters in the three months ending in September, prompting Finance Minister Guido Mantega to say that the government will continue to take measures to make credit cheaper and foster 5 percent growth next year.

GDP contracted 0.04 percent in the third quarter from the previous three months, the national statistics agency said Dec. 6. The contraction, the first since the first quarter of 2009, is equivalent to an annualized decline of 0.17 percent.

Credit Curbs

Europe’s deepening debt crisis sapped demand for Brazilian exports as credit curbs, interest rate increases and budget cuts by the government in the beginning of the year began filtering into the world’s second-largest emerging economy.

Even as growth slows, analysts forecast central bank President Alexandre Tombini will fail to bring inflation back to the center of the target of 4.5 percent next year. Consumer price increases breached the upper end of the 2.5-to-6.5 percent target range in April.

Annual inflation slowed to 6.64 percent in the 12 months through November, the national statistic agency said today. Consumer price increases have breached the upper end of the 2.5- to-6.5 percent target range since April.

The central bank forecast that inflation will slow next year to “around” 4.5 percent in all the scenarios it published in today’s minutes.

“Even with a moderate adjustment of the level of basic interest rates, in the central scenario the inflation rate stands around the 2012 target,” the central bank said in the minutes. The bank expects the global crisis will lead to a “moderation” of domestic economic activity.

Breakeven rates, the difference between yields on 2015 inflation-linked and fixed rate bonds, show that traders are wagering on average annual inflation of 5.7 percent over the next four years, down from 6.2 percent at the end of September.

“The minutes indicate the continuation of moderate adjustments,” Mauricio Nakahodo, senior economist at CM Capital Market, said by phone from Sao Paulo. “The market understands the pace of cuts is not going to intensify.”

--With assistance from Matthew Bristow and Raymond Colitt in Brasilia. Editors: Harry Maurer, Adriana Arai

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at; Andre Soliani in Brasilia at;

To contact the editor responsible for this story: Joshua Goodman at

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