Brazil Said to Be Guided by Inflation in 2013 Rate Moves

Brazilian policy makers will set interest rates next year based on the outlook for inflation, a government official close to the central bank said, in response to Finance Minister Guido Mantega’s forecast that borrowing costs will remain unchanged at a record low in 2013.

Policy makers won’t hesitate to raise interest rates next year to keep inflation in line with their 4.5 percent target, said the official, who isn’t authorized to speak publicly about the issue.

Mantega, in an interview with O Estado de S. Paulo newspaper published Sept. 16, said government tax cuts and measures to reduce electricity costs will contain price increases next year, clearing the way for the central bank to keep the benchmark Selic rate on hold at 7.5 percent.

Central bankers reduced the benchmark interest rate by five percentage points in the past 13 months to a record 7.5 percent in a move that President Dilma Rousseff said made her “happy.”

Traders are wagering the central bank will have to reverse course and increase rates during the first half of 2013 to rein in consumer price increases. Inflation quickened for a second straight month to 5.24 percent in August amid signs that economic growth is rebounding.

Yields on swap rates maturing in January 2013, the most traded in Sao Paulo today, were unchanged at 7.31 percent at 5:02 p.m. local time.

Brazil’s rate reductions since last August, the biggest among the Group of 20 most industrialized nations, is part of an effort to revive economic growth that will slow to 1.57 percent this year, according to the median estimate in a central bank survey published yesterday.

Brazil is carrying out “an unprecedented path of constant and vigorous interest rate cuts that has lowered the Selic to 2 percent a year in real terms,” Rousseff said in a Sept. 6 speech. “This makes me happy.”

To contact the reporters on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net