Brazil Central Bank says inflation high as bond bids spurned

Matthew Malinowski, David Biller –  Bloomberg, 02/07/2013

Brazil’s inflation is at a high level that requires attention, the central bank said in response to a report showing that consumer prices rose in January at the fastest pace in almost eight years. The real posted the biggest gain among major currencies.

The 12-month inflation rate, which reached 6.15 percent in January, will hover around 6 percent until June before slowing, the central bank said. The exchange rate, smaller wage increases, a drop in rental prices and slower credit growth will ease consumer price increases in 2013 from 2012, according to the bank. Brazil targets inflation of 4.5 percent.

Central bank President Alexandre Tombini is trying to convince investors that inflation, running above target for 29 months, will remain under control after he cut the benchmark interest rate to a record. The real today gained as much as 1.5 percent against the U.S. dollar on speculation policymakers will allow the exchange rate to appreciate to help tame inflation instead of increasing interest rates.

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