Brazil’s Currency to Help Tame Inflation in 2013

(Corrects central bank growth forecast in last paragraph of story originally published Jan. 11.)

Brazil’s currency and energy rate cuts will help tame inflation this year, allowing the central bank to keep interest rates at a record low even as growth accelerates, said Treasury Secretary Arno Augustin.

The weakening real last year was one of the main drivers of inflation that exceeded the central bank’s 4.5 percent for a third consecutive year, Augustin said in an interview from his office in Brasilia. The inflationary impact of Brazil’s effort to bring its exchange rate to a “less distorted level” was absorbed in 2012, he said.

The currency “is one element why I’m more confident about what will happen to inflation in 2013,” said Augustin. “I sincerely don’t see the need of monetary policy to help” contain inflation.

Brazil’s inflation in December exceeded economists’ forecast for a sixth straight month, pushing annual price increases to 5.84 percent. The central bank has cut its benchmark lending rate by 5.25 percentage points since August 2011, to a record 7.25 percent, the most among Group of 20 nations.

The real weakened 11.4 percent in the past 12 months, the worst performance amid the most traded currencies after the Japanese yen. The currency dropped 0.3 percent to 2.0348 per U.S. dollar at 1:23 p.m. in Sao Paulo.

Brazil’s economy expanded 1 percent last year and will grow 3.3 percent in the four quarters through the third quarter of 2013, the central bank estimates.

To contact the reporters on this story: Maria Luiza Rabello in Brasilia Newsroom at mrabello@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net; Helder Marinho at hmarinho@bloomberg.net

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