Consumer prices will rise 5.6 percent next year if policy makers increase the benchmark interest rate by 50 basis points to 10.5 percent, the quarterly inflation report published today shows. The increase compares with a 5.7 percent inflation forecast in September. The central bank also cut its 2013 growth estimate to 2.3 percent from 2.5 percent after gross domestic product fell 0.5 percent in the third quarter.
Central bankers have increased the key rate by 2.75 percentage points since April, the most of any major economy tracked by Bloomberg, to arrest inflation that breached their target range twice this year and eroded consumer and business confidence. Policy makers will continue to focus on fighting inflation, central bank economic policy Director Carlos Hamilton told reporters in Brasilia toddy.
“The impact of monetary policy action on inflation occurs with delay,” the central bank wrote in the report. “Monetary policy must remain especially vigilant.”
Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, rose seven basis points, or 0.07 percentage point, to 10.61 percent at 1:03 p.m. local time.
Today’s report is in line with the central bank’s objective to slow inflation next year to levels that are still high, said Enestor dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria.
“The bank sees inflation slowing next year, the market sees it rising -- we’ll see who is right,” dos Santos said by telephone from Madrid. “As in previous statements, they’re signaling the end of the tightening cycle without any commitment.”
This isn’t the first time markets have had different inflation estimates from the central bank, Hamilton said, adding he can’t easily explain why analysts forecast higher consumer prices for 2014.
Annual inflation will accelerate to 5.95 percent next year, according to the latest central bank survey of about 100 economists. That would be the fifth consecutive year above the 4.5 percent mid-point of the target range.
Consumer prices, as measured by the IPCA-15 (BZPIIPMO) index, rose 0.75 percent in the month through mid-December, more than every estimate from 39 economists surveyed by Bloomberg. Annual inflation unexpectedly accelerated to 5.85 percent from 5.78 percent last month, the national statistics agency said yesterday.
The chance of 2014 inflation exceeding the ceiling of the range is 28 percent in the market scenario, down from 31 percent in the central bank’s previous report.
Efforts to slow inflation have been partially offset by a weaker real, which increases the price of imports.
The central bank said on Dec. 18 that it will keep in place a currency intervention program through the end of June while scaling back the volume of swaps it auctions. A smaller level of intervention will allow the real to devalue, Tony Volpon, the head of emerging-market research for the Americas at Nomura Holdings Inc., said in a research note yesterday.
The real, which has depreciated 13.8 percent this year, lost 1 percent to 2.3808 per U.S. dollar today.
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