Brazil Counting on Slow Global Growth to Avoid Bigger Rate Raise

Brazil’s central bank signaled it will continue to raise interest rates at a moderate pace as it says weak global growth may help contain above-target inflation.

The bank’s board, led by President Alexandre Tombini, voted by a 6-to-2 margin to increase the benchmark Selic rate to 7.50 percent after holding it at a record 7.25 percent since October. The first rate increase since July 2011 came after annual inflation accelerated beyond the 6.5 percent upper limit of the bank’s target range in March. Higher prices undermine potential growth of the economy, jobs and income, the central bank said in the minutes to its April 16-17 meeting published today.

While high and disperse levels of price increases demanded a monetary policy response, internal and especially external “uncertainties” requires caution from policy makers, the central bank said today. It expects a prolonged period of slow economic growth in rich economies, and part of its board said the international environment may help ease inflationary pressures.

“The minutes are dovish,” Roberto Padovani, chief economist at Votorantim Corretora, said in an interview from Sao Paulo. “The bank says the global economic scenario creates lower inflationary risks and the rhythm of Brazil’s economic growth is also not clear.”

Padovani forecasts policy makers will refrain from accelerating the pace of interest rate increases and will raise rates by 25 basis points in each of the next four meetings.

Swap rates on the contract due January 2015 fell one basis point, or 0.01 percentage point, to 8.27 at 10:22 a.m. local time. The real weakened 0.02 percent to 2.0104 per U.S. dollar.

Annual consumer prices in March jumped to 6.59 percent from 6.31 percent the month prior, according to the national statistics agency. The central bank targets inflation at 4.5 percent, plus or minus two percentage points.

Brazil’s economic recovery has struggled to gain traction, even after officials extended tax cuts on consumer goods and payrolls and reduced electricity costs this year. Both industrial production and retail sales dropped in February, while consumer confidence fell for six straight months through March, according to the Getulio Vargas Foundation.

Latin America’s largest market will expand by at least 3 percent in 2013, Mantega said last month. That’s up from 0.9 percent last year and 2.7 percent in 2011.

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

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

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