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Brazil Inflation May Exceed Target This Year, Schwartsman Says

Feb. 7 (Bloomberg) -- Brazil’s inflation may surpass the upper range of the country’s target this year because of “inconsistencies” between monetary and currency policies, said Banco Santander SA’s chief economist in the country.

“Sometime this year, in the second or the third quarter, chances of inflation surpassing the target’s ceiling are huge,” Alexandre Schwartsman said in an interview today in the Bloomberg office in Sao Paulo. “Inflation may be between 6 percent and 6.5 percent at the end of the year, and there is still a risk that pressures won’t be contained and inflation may be even higher after that.”

Analysts covering the Brazilian economy raised their 2011 inflation forecasts to 5.66 percent from 5.64 percent, according to the median forecast in a Feb. 4 central bank survey of about 100 economists published today. The forecast for inflation in 2012 was trimmed for the first time in three weeks to 4.61 percent from 4.70 percent in the previous survey.

Schwartsman, who was a central bank director during the government of former President Luiz Inacio Lula da Silva, said the main sources of inflationary pressures are domestic, not external. He said the government errs by trying to curb appreciation of the real and not containing public spending.

“The government set a bottom level for the currency,” Schwartsman said. “This has a cost.”

Traders are wagering the central bank will lift next month the benchmark interest rate by at least half a percentage point to 11.75 percent and push the Selic rate up to 13.25 percent by year-end to contain the fastest inflation in more than two years, interest rate futures show.

To contact the reporter on this story: Joao Oliveira in Sao Paulo at joliveira4@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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