New York - Tehran
The Brazilian central bank is comfortable with its inflation forecast for 2011 despite a stronger-than-expected June reading, which spurred bets that even higher interest rates will be necessary to keep prices in check. Speaking to investors in New York, Central Bank President Alexandre Tombini said on Monday he was not surprised by June’s consumer inflation of 0.15 percent, which was more than double what analysts surveyed by Reuters expected. In fact, Tombini said, the central bank’s “implicit” forecast for last month’s IPCA price index was for a 0.12 percent rise. He added that the current numbers allow the country to close the year with an annual inflation rate of “slightly under 6 percent,” within the government target of 2.5 percent to 6.5 percent. “The central bank is comfortable with the inflation outcome we had in June,” Tombini said in an event organized by the Brazilian American Chamber of Commerce. He reminded investors that monetary and fiscal policies “operate with lags.” “We’ll feel the full force of these instruments come to play later this quarter and in the fourth quarter of this year.” Brazil’s central bank has raised rates four times so far this year -- by a cumulative 150 basis points to 12.25 percent. At the same time, the federal government has promised to freeze 50 billion reais from this year’s budget to help fight inflation. The June reading drove investors to revise upward their forecasts for inflation this year for the first time in 10 weeks, however. Their forecast in the week ended July 9 rose to 6.31 percent from 6.15 percent in the previous period, according to the weekly central bank “Focus” survey published on Monday. Curbing capital inflows Tombini said the government has been able to moderate capital inflows to Brazil and curb credit excesses with a series of macroprudential measures designed to curb personal credit or to reduce risk taking by financial institutions. He said the measures are intended at containing “potential risks to financial stability in the future” rather than remedy the situation. Despite those measures, he said, Brazil will remain a friendly destination to international capital markets because the central bank sees them as “part of the solution” for the country’s infrastructure deficit.