(Corrects name of university in seventh paragraph.)
Brazilian President-elect Dilma Rousseff appointed Alexandre Tombini as central bank president and vowed to keep the policies that helped her predecessor slow inflation to about 5 percent last month from as high as 17 percent in 2003.
Rousseff also appointed Miriam Belchior as planning minister and kept Finance Minister Guido Mantega at his post, according to a statement from Rousseff’s press office distributed in Brasilia today. The 46-year-old Tombini, who has served as a board member since 2005, will replace Henrique Meirelles, 65, Brazil’s longest-serving central bank chief.
The Bovespa index of most-traded stocks increased almost sixfold under Meirelles and the real more than doubled against the dollar, becoming the best performer amid the 16 most-traded currencies tracked by Bloomberg. By tapping Tombini, Rousseff is seeking to extend policies that helped Brazil win its first investment grade rating in 2008, said Tony Volpon, a Latin America strategist at Nomura Securities in New York.
“The fact that it is him instead of someone else ensures the central bank won’t be taken by a new heterodox philosophy -- that there will be continuity,” Volpon said in a phone interview.
Meirelles, appointed in 2003, will remain at the post until the end of President Luiz Inacio Lula da Silva’s administration on Dec. 31.
Tombini, Mantega and Belchior will hold a press conference in Brasilia at 4 p.m. Brasilia time, according to the press office.
Tombini, who has a doctorate in economics from the University of Illinois at Urbana-Champaign, will need to be approved by the Senate.
The real gained 0.75 percent to 1.7227 per U.S. dollar at 2:35 p.m. in Sao Paulo. The yield on interest rate futures contracts due in January 2012 rose 5 basis points to 11.88 percent.
Before joining the Brasilia-based central bank, Tombini was the senior adviser to Brazil’s executive director at the International Monetary Fund. He’s one of eight people who vote to set interest rates in Brazil. The individual votes aren’t made public.
“This is the right moment to end the mission,” Meirelles told reporters in Brasilia today. “Mission accomplished.”
Rousseff appointed Miriam Belchior as planning minister, replacing Paulo Bernardo. The president-elect invited Bernardo to her cabinet in a position that will be determined later, he told reporters in Brasilia.
The extra yield investors demand to hold Brazilian debt rather than U.S. Treasuries has fallen to 189 basis points from 1,446 basis points on Dec. 31, 2002, the day before Lula took office, according to JPMorgan Chase & Co.’s EMBI+ index.
“Tombini is an excellent choice for the central bank, his nomination should be well received by the markets,” Marcelo Carvalho, head of Latin American research at BNP Paribas in Sao Paulo said in an e-mailed interview. “He is highly qualified, has a solid academic background, important international experience and a strong professional reputation.”
Latin America’s biggest economy will expand 7.6 percent this year, the fastest pace in more than two decades, according to the median forecast in a central bank survey of about 100 economists.
Yields on interest rate future contracts rose across the board on Monday amid speculation that Rousseff would replace Meirelles and end the bank’s operational autonomy, potentially skewing policy in favor of economic growth at the expense of faster inflation.
“Tombini has a good education, he’s a professional,” said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc. “The problem is that this gives the impression that Dilma wants to have greater control of the central bank. I’m not saying that’s the way it is. She gives us that impression, and the impression has a certain base.”
Central bank policy makers are appointed and removed by the country’s president and aren’t limited by set terms. Lula appointed Meirelles to replace Arminio Fraga at the start of his term.
Traders are wagering policy makers will be forced to resume interest rate increases early next year and push the benchmark interest rate to as high as 12.75 percent by the end of 2011, according to Bloomberg estimates based on interest rate futures.
“There’s a wide gap between the market pricing in what is needed and what some policy makers are hoping to be able to accomplish,” said Gray Newman, chief Latin America economist at Morgan Stanley in New York, who expects the bank to raise rates to 12.5 percent next year.
“There’s a showdown coming,” said Newman. “The market is expecting a pretty significant series of rate hikes and yet I think the new policy team is trying to adopt measures that will allow the central bank to cut rates.”
Bond traders are betting Brazil will miss its inflation target for the first time since 2003 as commodity prices jump and concern builds that Rousseff will fail to curb spending.
Investor expectations for annual inflation over the next two years, implied by the yield difference between the government’s inflation-linked and fixed-rate notes, rose to 6.68 percent as of yesterday, the highest since November 2008. That gap, known as the breakeven rate, tops the 6.5 percent upper limit in the bank’s target range for consumer price increases.
By tapping a policy maker who has worked under Meirelles, a former head of global banking at FleetBoston Financial Corp. for more than five years, Rousseff may be seeking to ease investor concerns.
“The Brazil market has matured enough that the change in a member of the central bank doesn’t imply great movements in the market as long as we know the philosophical position of the new central banker,” said Alfredo Coutino, Latin America director for Moody’s Analytics. “A person from the same board should bring relative calm to the markets.”
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