Brazil’s real rallied the most among emerging-market currencies as the central bank said high inflation requires attention, spurring speculation that policy makers will let the currency strengthen to contain prices.
Swap rates climbed after the government reported that consumer prices increased in January at the fastest pace in almost eight years, adding to bets on a boost in borrowing costs. The exchange rate and tax cuts will help slow inflation, a central bank board member said in a phone interview, asking not to be identified because of internal policy.
“Higher inflation shoots the real up,” Joao Paulo de Gracia Correa, currency manager at Correparti Corretora, said in a phone interview from Curitiba, Brazil.
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.
Tom Murphy & Luciana Magalhaes – Dow Jones/NASDAQ, 03/19/2012
Brazil’s central bank has all but abandoned the goal of pulling inflation down to 4.5% this year or next, with inflationary pressures likely to bring a round of interest rate increases in 2013, according to former central bank president Gustavo Loyola.
“We’ve looked at inflation from every angle–demand, services and every other- -and I don’t see how Brazil is going to bring inflation down to 4.5% in 2012 or even in 2013,” Loyola told Dow Jones Newswires in an interview. “The central bank’s directors may have a goal in mind, but it seems increasingly clear they are no longer pursuing 4.5%.”
Under Brazil’s inflation-targeting program, the country is committed to a goal of 4.5% inflation in 2012 and next year. The program permits a tolerance range of two percentage points, allowing for inflation of up to 6.5%.