President Dilma Rousseff’s administration has renewed pledges to slow inflation even as Brazil’s $2.5 trillion economy has expanded less than expected by analysts for five straight quarters. Photo: Simon Maina/AFP
Brasilia: Brazil’s central bank accelerated the
pace of interest rate increases, as policymakers step up efforts to slow
inflation that forestalled the economy’s rebound in the first quarter.
The bank’s board, led by president Alexandre Tombini,
voted unanimously to raise the benchmark Selic rate 50 basis points
(bps) to 8%, matching the forecast of 19 of 57 economists surveyed by Bloomberg. Thirty-eight analysts expected a second straight 25 bps increase. A basis point is one-hundredth of a percentage point.
The committee considers that this decision will
contribute to put inflation on a decline and assure that this trend will
persist next year, policy makers said, according to their statement
posted on the central bank’s website.
President Dilma Rousseff’s
administration has renewed pledges to slow inflation even as Brazil’s
$2.5 trillion economy has expanded less than expected by analysts for
five straight quarters. While the government kept borrowing costs at a
record low 7.25% from October through March and expanded tax cuts to
spur activity, stimulus measures have failed to spark growth and driven
inflation to the upper limit of the central bank’s target range. Latin
America’s biggest economy unexpectedly slowed in the first quarter as
higher consumer prices eroded demand.
Swap rates on the contract maturing in July, the most
traded in Sao Paulo on Thursday, fell 2 bps to 7.56%. The real weakened
1.7% to 2.1106 per dollar.
‘Timely way’
Central bankers may have to intensify use of the Selic to tame inflation, central bank economic policy director Carlos Hamilton
said on 25 April, while Tombini on 21 May said policymakers will do
what is necessary, in a timely way to ensure price increases slow in the
second half of the year. “Brazil won’t tolerate inflation, as price
increases hurt growth,” finance minister Guido Mantega said on Thursday.
Annual inflation accelerated for nine straight months
through March to 6.59%, above the top of the central bank’s target range
of 2.5-6.5%. In April, year-on-year inflation eased to 6.49%.
Analysts who cover Brazil’s economy forecast year-end
inflation at 5.81%, up from a previous projection of 5.71% a month ago,
according to the central bank’s latest weekly survey of about 100
economists.
Bank fight
Inflationary pressures are persisting across areas of the
economy including transportation and food and beverage, according to
Carlos Kawall, chief economist at Banco J Safra.
Retail sales in March unexpectedly fell for the third
time in four months, while consumer confidence has declined to a
three-year low.
“There are problems created by logistics and supply
restrictions,” Kawall said by phone from Sao Paulo before Thursday’s
decision. “This creates an inertia effect that results in higher
inflation in later periods. The central bank has to fight this effect.”
Brazil is the only country in the Group of 20 nations
whose central bank is raising its key rate. In the past month, countries
including Israel, the European Union, Australia and India have all
lowered borrowing costs.
Brazil’s economy expanded 0.55% in the first quarter, the
national statistics agency said on Thursday. The result was lower than
the 0.64% pace set in the fourth quarter of 2012, and below the 0.9%
median forecast of economists surveyed by Bloomberg.
Anchoring expectations
Consumer default rates in April fell for the fourth
straight month, while unemployment hovers near record lows. Industrial
production in March expanded 0.7% after plunging the most since 2008 in
February.
“Brazil’s gross domestic product growth is accelerating
and government measures to boost investments are working,” Mantega said
on Thursday.
Brazilian companies have posted their longest stretch of earnings disappointments on the back of the country’s uneven recovery.
Thirty-seven of the 65 companies on the Ibovespa index
reported first-quarter results that trailed analyst’s estimates. Four
companies posted unexpected losses, including homebuilder Gafisa SA and mining company MMX Mineracao and Metalicos SA.
Brazil’s economy expanded 0.9% last year, the slowest
pace since 2009. Economists surveyed weekly by the central bank have cut
their 2013 growth forecast for the second straight week to 2.93%, below
the central bank’s forecast of 3.1%.
“Even as economic growth remains a concern for the
central bank, policymakers are raising rates in an effort to anchor
inflation expectations,” according to Darwin Dib, chief economist at CM
Capital Markets Asset Management.
Dominic Carey and Daniel Grillo in Sao Paulo, and Joshua Goodman and David Biller in Rio de Janeiro contributed to this story.
First Published: Thu, May 30 2013. 12 32 PM IST
http://www.livemint.com/Politics/Zy1k2wG8kUoHvKzesDdkpI/Brazil-raises-rate-to-8-as-inflation-threatens-recovery.html
