Tombini Says Brazil May Need More Measures to Slow Inflation

Brazil’s economy may require more measures to slow inflation levels that are approaching the top of the central bank’s target range, bank President Alexandre Tombini said.

Brazil’s monetary policy is focused on maintaining price stability, Tombini said in a speech before the French-Brazilian business chamber in Sao Paulo today. Policy makers stand ready to enter the foreign exchange market to avoid excess volatility, he added.

President Dilma Rousseff’s administration has been caught between the slowest growth since the aftermath of the Lehman Brothers collapse in 2009 and the fastest annual inflation in 14 months. The central bank expects inflation, already higher than in Mexico and Chile, to remain above target for the fourth straight year. Monetary policy requires caution because of an uncertain economic outlook, even as faster inflation may be settling in, the bank said on March 14.

“Adjustments in the bank’s message provoked changes in financial conditions and further actions may be necessary,” Tombini said today. “The central bank will monitor the evolution of the macroeconomic scenario.”

Swap rates on the contract due January 2014 fell eight basis points, or 0.08 percentage point, to 7.76 percent at 2:44 pm local time. The real weakened 0.2 percent to 2.0123 per U.S. dollar.

Foreign Exchange

“The central has said it’s always ready to enter the market to make sure the various segments of the foreign exchange market function normally,” Tombini said. The bank can enter the futures market to prevent “distortions,” he added.

Prices as measured by the IPCA-15 price index rose 0.49 percent in the month through mid-March, the national statistics agency said today in a report published on its website. The same report showed annual inflation accelerated to 6.43 percent, the fastest since January 2012, from 6.18 percent in mid-February.

The central bank targets an inflation rate of 4.5 percent, plus or minus two percentage points.

After growing by 0.9 percent in 2012, Latin America’s largest economy will expand 3.03 percent this year and 3.5 percent next year, according to the latest central bank survey of financial institutions.

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.

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