Brazil’s central bank does not see macro-prudential measures as a substitute for raising interest rates to combat inflation, a government official with knowledge of the bank’s monetary policy said.
While the bank expects consumer price increases to ease in the remainder of the year and converge to its 4.5 percent target by the third quarter of next year, policy makers wouldn’t hesitate to raise the benchmark interest rate if it were necessary, said the official in an interview, asking not to be identified because the discussion is not public.
Swap rates on the contract due in January 2015 rose two basis points, or 0.02 percentage point, to 7.91 percent at 9:28 a.m. in Sao Paulo, as traders increased bets the central bank will have to boost rates next year.
“This means the central bank won’t be able to avoid an interest rate increase,” said Luciano Rostagno, chief strategist with WestLB do Brasil SA. “This news is giving futures an upward trend,” Rostagno said by telephone from Sao Paulo.
The central bank declined to comment in a text message.
Central bank President Alexandre Tombini in a Nov. 7 interview said maintaining the record low benchmark rate of 7.25 for a “prolonged time” is the best strategy to ensure inflation will slow to its target by next year. Some economists, such as Enestor dos Santos at Banco Bilbao Vizcaya Argentaria SA, said the comments signal the government would adopt alternative measures, such as tax cuts and macro-prudential measures, to keep inflation tamed without raising rates.
The central bank sees interest rates as the best instrument to combat inflation and macro-prudential measures, such as higher capital and reserve requirements to curb credit growth, only as complementary to monetary policy, the official said.
Consumer prices rose 0.59 percent in October, up from 0.57 percent in September. Annual inflation accelerated to 5.45 percent.
The central bank has cut the benchmark rate since August 2011 by 525 basis points, the most among the Group of 20 nations, in a bid to revive economic growth that is forecast to slow to 1.5 percent this year from 2.7 percent last year, according to a Bloomberg survey of economists.