Inflation trending higher amid stronger dollar, oil prices

Some economists already expect inflation to come in slightly above the target this year due to the effect of a stronger dollar on the real and higher oil prices. The Brazilian Institute of Geography and Statistics (IBGE) reported Friday a 0.48% rise in official gauge IPCA in September, following a 0.09% decline in August. The index advanced 4.53% in the 12-month period ending in September, while the Central Bank’s official target is 4.5%. Itaú Unibanco says the weaker exchange rate is affecting wholesale prices more intensely and may put additional pressure on consumer prices over the next few months.

IPCA up 0.48% highest rate since September 2015

The IPCA inflation index closed the month of September up 0.48%.
In 12 months the IPCA rose 4.53%, higher than the 4.19% up to last month. The expectation was for a rise of 4.45%. This year's inflation target is 4.5%, plus or minus 1.5%.

Copom keeps base rate at 6.5% but hints at future hikes

In its last meeting before the October presidential elections, the Monetary Policy Committee (Copom) kept base rate Selic stable at 6.5% for the fourth consecutive time. 

Copom seen as leaving options open for faster rate cuts

Economists told Valor the Monetary Policy Committee (Copom) of the Central Bank left open the possibility of accelerating the pace of monetary easing in upcoming meetings. The Copom lowered policy rate Selic by 75 basis points to 12.25% on Wednesday. Maurício Molon, chief economist of Santander, says the market tends to react as soon as Thursday by pricing in the possibility of a 100bp cut in the next meeting, in April, if inflation trends remain favorable or the economic recovery proves even harder.

Copom forecasts below-target inflation in mid-2017

If Central Bank forecasts are right, inflation will fall below the target of 4.5% in the middle of this year, something that hasn’t happened since 2009. It will be a temporary fluctuation of the price index, absolutely normal in inflation-targeting regimes, but enough to fuel accusations of monetary policymaking overreach.

According to forecasts presented by the Central Bank’s Monetary Policy Committee (Copom) in the December Inflation Report, the Extended Consumer Price Index (IPCA) could reach 4.1% in the 12-month period ending in September. By the end of the year, inflation will rise to 4.7%.

Dilma under growing pressure to replace Finance Minister

Joaquim Levy and Henrique Meirelles

The process of replacing Finance Minister Joaquim Levy gains ground within the government, with the consequent change in the economic policy’s guidelines. The succession is likely to take place in the beginning of January, according to sources of the political coordination and of the leadership of the Workers’ Party (PT), but the exchange could happen as early as December, if the political and economic crises worsen.

Brazil Economists See Less Room for Cutting Rates Next Year

Brazil analysts forecast that the central bank will have less room for cutting rates next year, as inflation expectations for 2016 rose for the 10th straight week.

Reasons for the high interest rates of Brazil

The Treasury issues bonds under base rate Selic (11%) and the BNDES lends to companies based on the Long Term Interest Rate (TJLP) of 5%. The spread represents the Treasury subsidies, estimated at R$30 billion a year. Most of them are not included in the Budget of the Union, run outside of primary spending and cannot be influenced by Congress, which holds the task of discussing and approving the budget.

Half of credit operations in Brazil don't obey the base rate (Selic) and therefore are not subject to the Central Bank's monetary policy. These rates only affect free credit.

This means that an important share of portfolios at state-run banks is out of reach for the decisions of the Monetary Policy Committee (Copom). They are guided by fixed rates set by the Monetary Policy Council (CMN).

The result of this model is that to fight inflation with the interest rate, according to the inflation targeting regime, the Central Bank has to double its efforts. And who pays the bill for the high rates are those without access to the BNDES, farm credit from Banco do Brasil or housing loans from Caixa Econômica Federal.

Without understanding this anomaly and its effect on demand, there is no way to seriously discuss the reasons why interest rates in Brazil are much higher than in the rest of the world. Since the Selic affects only half of credit, its level has to be much higher than reasonable to contain inflationary pressures. One of the main channels through which the interest-rate lowers demand and fights inflation is credit.

Brazil Ready to Cut Spending to Meet Fiscal Target

SAO PAULO--Brazil's government is ready to cut spending, if necessary, to meet its primary budget surplus target for this year, Finance Minister Guido Mantega said in an interview published Wednesday by the Folha de S. Paulo newspaper.

"We will make additional adjustments on the spending side, as needed," he said. "We are going to reach the target of a primary surplus equal to 2.3% of gross domestic product. This is a firm government target."

Brazil's President Rousseff Pledges Fiscal Discipline

BRASILIA--Brazil's President Dilma Rousseff reinforced her administration's commitment with fighting inflation and keeping public accounts in good shape, as she launched another income distribution program.

Brazil raises rate to 8% as inflation threatens recovery

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.

Mercado reduz projeção para IPCA e para alta do PIB em 2012

A previsão dos analistas de mercado para a inflação em 2012 caiu pela segunda semana consecutiva, segundo mostrou nesta segunda-feira o boletim Focus, do Banco Central, divulgado nesta manhã. A expectativa, contudo, segue distante do centro da meta de 4,5% perseguida pela autoridade monetária.

A mediana das estimativas para o Índice Nacional de Preços ao Consumidor Amplo (IPCA) saiu de 5,45% para 5,43%. Para 2013 houve aumento na previsão, de 5,39% para 5,40%.

Brazil Weighs Fuel Tax Cut to Slow Inflation, Augustin Says

Brazil is considering cuts to a fuel tax as inflation exceeds the government’s target range for the first time in six years, Treasury Secretary Arno Augustin said.
“The government has tools to control fuel prices and avoid a negative impact,” Augustin said in an interview today in Brasilia, citing a tax known in Brazil as Cide. “Whatever the international scenario we have ways to avoid damaging the Brazilian economy. We have Cide and we can use it.”
President Dilma Rousseff’s administration is weighing cutting taxes on electricity as well, a person familiar with the discussions said yesterday. The person declined to be identified because he isn’t authorized to speak publicly about the issue.

Buy Brazil Inflation-Linked Bonds, Swiss & Global Says

Brazilian inflation-linked bonds may appreciate as the country’s economy grows and its credit profile improves, according to Alessandro Ghidini from Swiss & Global Asset Management Ltd.

The real yield on inflation-linked bonds, whose principle is adjusted to compensate for consumer price rises, may fall by about 1 percentage point over the next year or so as the bonds rise in value,

Brazil’s Central Bank Says Increase to 11.75% Part of ‘Adjustment Process’

Brazil’s central bank signaled it will raise the benchmark interest rate for a third straight meeting next month, after pushing borrowing costs yesterday to a two-year high to cool inflation.

Policy makers raised the overnight rate to 11.75 percent from 11.25 percent in a unanimous vote, saying the decision was the “continuation of the adjustment process.”

Brazil inflation forecast rises for 12th week-poll

* forecast rose to 5.80 percent
Feb 28 (Reuters) - Economists raised their forecasts for the rise this year in Brazil's benchmark IPCA consumer price index for the 12th consecutive week, according to a weekly central bank survey.

Options Bets Against Brazil ETF Jump to Highest in Three Years

Options traders are placing more bearish bets against a U.S. exchange-traded fund tracking Brazil than any time in three years, as policy makers raise borrowing costs to tame inflation in Latin America’s biggest economy.

The ratio of put options to sell the iShares MSCI Brazil Index Fund versus calls to buy has jumped 60 percent in the past two months to 1.76 and on Feb. 3 reached 1.81, the highest level since January 2008. The last time it reached this level, the fund tracking 83 securities plunged 62 percent over the next 10 months. The fastest-growing bets are February $69 puts. The fund hasn’t closed below $69 since Aug. 31 and fell 1 percent to $71.32 yesterday.

Brazil Sets Reserve Requirements for Currency Positions to Stem Real Rally

Monetary Policy Director Aldo Mendes. Photographer: Sebastian Bravo/Bloomberg

Brazil’s central bank set reserve requirements on short dollar positions held by local banks in its third attempt since October to stem a rally in the currency. The real fell for a third consecutive day.
The new rules have the potential to reduce short positions in the dollar to $10 billion from $16.8 billion in December as banks seek to avoid paying reserve requirements on currency operations, Aldo Mendes, the central bank’s director of monetary policy told reporters in Brasilia.

Brazil Interest Futures Rise on Central Bank Signal

Brazil’s interest-rate futures yields on contracts due before July 2012 rose as the central bank’s signal that it will raise rates to curb price increases offset a report showing inflation quickened less than expected.

Investors increased bets the central bank will raise its benchmark Selic interest rate, with the yield on the contract due July 2011 adding 6 basis points to 11.65 percent by 6:38 a.m. New York time, the highest intraday level since Dec. 8. On the agreement due April, the yield advanced 4 basis points to 11.15 percent.

Brazilian Inflation Slows to Government Target For First Time This Year

Brazil’s consumer prices rose less than expected in August, falling under the mid-point of the government’s target for the first time this year, the national statistics agency said.
Inflation in Latin America’s biggest economy slowed to 0.04 percent in August from July, less than the 0.08 forecast by 37 analysts surveyed by Bloomberg, the national statistics agency said in a report distributed in Rio de Janeiro today. Annual inflation through August slowed to 4.49 percent, less than the 4.53 percent forecast in the survey.