Bloomberg News

Brazil’s Unpredictable Central Banker Tombini Confounds Critics

April 16, 2012

No central banker in the world’s top 10 economies has surprised analysts as frequently as Brazil’s Alexandre Tombini.

Since taking office 15 months ago, Tombini set interest rates lower than economists expected in three out of 10 policy meetings, including an August reduction that all 62 analysts surveyed by Bloomberg failed to anticipate. Russia’s central bank, the second most unpredictable, defied economists in three out of 14 rate decisions in the same period.

So far, Tombini has been vindicated. Inflation in Brazil, at 5.24 percent in March, is easing at a pace faster than analysts forecast. While investors have speculated that Tombini may be yielding to political pressure to lower rates, his gloomy assessment of the world economy and risk-taking may prove correct, according to Citigroup Inc.’s Dirk Willer. Tombini will cut the benchmark rate by three-quarters of a point to 9 percent tomorrow, according to a Bloomberg survey of 55 analysts.

“The central bank took a gamble and got it right,” Willer, head of Latin American local markets strategy at Citigroup, said in a telephone interview from New York. “It’s still open to debate whether the bank should take gambles in the first place.”

Tombini, a University of Illinois-trained economist, has used speeches to reiterate his commitment to inflation targeting, a system he helped introduce in Brazil in 1999 as head of the bank’s research department. In public statements, policy makers said they began cutting rates before economists expected because they accurately forecast in August that a global slowdown caused by the European debt crisis would ease inflationary pressures.

“The central bank isn’t in the business of surprising markets,” Tombini, 48, said in an interview last month, after the bank accelerated the pace of monetary easing and took the benchmark Selic rate to 9.75 percent. “Its business is keeping inflation under control.”


Tombini’s decision to cut Brazil’s rates in August, then the highest within the Group of 20 richest nations, set the pace for other central bankers. Europe, the U.S., Indonesia, Russia and Australia all followed Brazil in a round of global monetary easing that included rate reductions and fixed-income asset purchases. The Federal Reserve said it plans to keep interest rates near zero until late 2014.

All the same, back in Brazil Tombini’s moves earned him the nickname “Pombini,” a play on the Portuguese word for dove, the widely used symbol to describe central bankers with optimistic views of inflation.

Brazil’s inflation is the sixth highest within the G-20 and has been above the nation’s 4.5 percent target for 19 months. Consumer prices rose 6.5 percent in 2011, the upper limit of a tolerance range around the inflation goal.


As Tombini anticipated, price pressures have eased as a result of weaker global and domestic demand. Consumer prices in March rose at half the pace of the previous month, lowering the annual inflation rate by 2.07 percentage points from a six-year- high of 7.31 percent in September. The slowdown had been predicted by Tombini in an Aug. 10 speech, when he said the inflation rate would drop two percentage points by April.

Before Tombini’s surprise cut in August, a weekly central bank survey of economists who cover Brazil showed they expected economic growth of 3.8 percent in 2011. Instead, Brazil contracted in the third quarter and wound up growing 2.7 percent in the year, the second-worst rate since 2003 and less than Germany’s 3 percent.

“The central bank may have been bold, but it wasn’t a bet, that was its outlook,” Luiz Fernando Figueiredo, former central bank board member and co-founder of Maua Investimento LTDA, said in a phone interview from Sao Paulo. “People are now coming around to its view, even if begrudgingly.”

Communication Glitches

While Tombini’s predictions are proving accurate, his vision wasn’t clear to most economists and traders. He first surprised analysts last April with a decision to slow the pace of interest-rate increases to a quarter point after raising rates by half a point in the two previous meetings.

Then came the landmark rate cut in August. Coming after inflation accelerated in each of the previous 11 months, the move fueled speculation of political meddling. A day before the surprise decision President Dilma Rousseff vowed to take Brazil on a “new pathway” of lower borrowing costs “starting now.”

Political pressure has made it harder to predict the central bank’s moves, Citigroup’s Willer said.

Now, Tombini, a father of two from the southern state of Rio Grande do Sul, is trying to better telegraph his next moves in official bank statements.

Learning Curve

A first attempt came in the minutes of the Jan. 17-18 meeting, when policy makers said there was a high probability rates would fall below 10 percent. Still, only three out of 62 analysts accurately anticipated Tombini would accelerate the pace of cuts at the next meeting in March after four consecutive half-point reductions.

In the minutes of the March 6-7 meeting, policy makers were more explicit, saying there was a “high probability” the Selic rate would “stabilize” at a level slightly above the historical low of 8.75 percent. That prompted traders to bet on rate cuts to 9 percent, which economists expect this week.

Tombini’s surprises are more related to the markets getting used to a new central banker’s style rather than poor communication, said Sergio Werlang, who served as central bank director between March 1999 and October 2000.

No More Meirelles

“The central bank’s communication has been adequate,” Werlang, who now serves as vice-president for finance and risk at Itau Unibanco Holding SA, said in an e-mailed response to questions. “Policy watchers were used to a central bank presided by Henrique Meirelles,” he said, referring to the bank’s longest-serving president and Tombini’s predecessor.

“With the change in command, the communication style also changes,” said Werlang, who was Tombini’s direct supervisor at the central bank. “My reading is that policy watchers are getting better at understanding the central bank’s minutes.”

Many challenges lie ahead for Tombini. While economists began to lower their inflation forecasts for this year, they still predict Tombini will miss the 4.5 inflation target in both 2012 and 2013, according to a bank survey published April 16.

Marcelo Salomon, co-head of Latin America economics at Barclays Plc, said he’s concerned inflation will pick up with the extra stimulus being pumped into the economy through subsidized lending, tax breaks and a surge in public spending as Brazil prepares to host the 2014 World Cup and 2016 Olympics.

“It’s too early to say that inflation is going to get close to 4.5 percent by year’s end,” Salomon said in an April 9 telephone interview from New York. “Going into 2013, we still believe there’s a lot of stimulus that’s going to be driving growth up.”


Traders forecast the central bank will have to reverse part of the most recent rate cuts and raise interest rates early next year to keep inflation under control. Tombini will have to raise the Selic rate to 10.5 percent by December 2013, local interest- rate futures trading shows.

“At the moment, Tombini is looking more like a visionary,” Roberto Padovani, chief economist at Votorantim CTVM Ltda in Sao Paulo, said in a telephone interview. “The central bank’s outlook was right, but I think it wasn’t successful in communicating its strategy.”

To contact the reporter on this story: Andre Soliani in Brasilia at

To contact the editor responsible for this story: Adriana Arai at

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