Rousseff Reaffirms Fighting Brazil CPI After ‘Manipulation’

Brazil’s President Dilma Rousseff reaffirmed her commitment to contain price increases and said her earlier comment that anti-inflation policies shouldn’t sacrifice growth had been misinterpreted. Swap rates pared declines after the president’s comments.

“That was an inadmissible manipulation of my speech,” Rousseff said on the presidency’s blog yesterday. “Combating inflation is a value in itself and permanent in my government.” Her statements came after the financial market “erroneously interpreted” her comments as reflecting leniency with inflation, according to the blog.

Rousseff’s comments earlier yesterday had caused traders to pare bets that the central bank would increase rates. “Killing the patient instead of curing the disease is a bit complicated,” Rousseff said to reporters at the summit of the so-called BRICS nations in South Africa. “Am I going to put an end to growth? That’s an outdated policy.”

With inflation outpacing the central bank’s 4.5 percent target since September 2010 amid signs that Brazil is recovering from a slowdown that has lasted more than two years, policy makers held the key interest rate at 7.25 percent for the third straight meeting in March. Rousseff this month cut all federal taxes on basic foodstuffs in a bid to ease the strain on families’ budgets after earlier this year reducing power prices for households and industry.

Always Attentive

Inflation in Brazil is under control and the government is always attentive to price increases, Rousseff had said in her earlier comments at the summit, which brings together the leaders of Brazil, Russia, India, China and South Africa.

Swap rates on the contract due January 2015 fell seven basis points, or 0.07 percentage point, to 8.45 percent yesterday, paring a 10 basis-point fall from earlier in the day. Today the rate rose one basis point to 8.46 percent as of 12:38 p.m. Brasilia time.

Brazilian central bank President Alexandre Tombini said from Durban that Rousseff had asked her to help clarify the misunderstanding over her comments, according to an interview published on the website of newspaper Estado de S. Paulo. The central bank speaks on interest-rate policy, he said, according to the Sao Paulo-based newspaper.

The prospect of inflation converging to the 4.5 percent target in 2013 is “unrealistic,” Carlos Hamilton, the central bank’s director of economic policy, said in a press conference in Brasilia today. “Much can be done” for inflation to converge to target in 2014, he said.

The bank today released its quarterly inflation report, which said there is a 25 percent chance of inflation exceeding the 6.5 percent target this year, even under a scenario in which the benchmark rate rises 8 percent. In December, the bank saw a 14 chance of breaching the ceiling.

Accelerating Inflation

Brazil’s annual inflation as measured by the IPCA-15 index accelerated to 6.43 percent in mid-March, near the 6.5 percent ceiling of the central bank’s target range. The IGP-M index, which is 60 percent weighted in producer prices, slowed to 8.06 percent in the 12 months through March 20. Tombini said record harvests this year will help relieve some inflationary pressure.

“There is nothing we can do but expand production to contain the increase in commodity prices derived from a lower harvest in the U.S.,” Rousseff said yesterday.

Economists in the latest weekly central bank survey forecast inflation of 5.71 percent this year and economic growth of 3 percent, following a 0.9 percent expansion last year.

“With this kind of diagnosis that inflation depends on a commodity price shock, we can read that this government is very tolerant of inflation,” Roberto Padovani, chief economist at Votorantim Ctvm Ltda., said by telephone from Sao Paulo. “They’re not going to react quickly.”

Padovani forecasts the central bank will boost the Selic rate in August by 50 basis points as part of a 125-basis-point raising cycle.

To contact the reporters on this story: David Biller in Rio De Janeiro at dbiller1@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

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

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