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Tombini Says Brazil Will Do What It Takes to Slow Inflation

Brazil’s central bank President Alexandre Tombini said policy makers will do what’s needed to slow inflation that has been above the mid-point of the target range since he took office.

The bank’s board, led by Tombini, voted 6-to-2 last month to increase the benchmark Selic rate to 7.50 percent after holding it at a record-low 7.25 percent since October. The first increase since July 2011 came after annual inflation accelerated beyond the 6.5 percent upper limit of the bank’s target range in March.

President Dilma Rousseff is facing growing pressure to slow inflation that is threatening Brazil’s economic recovery as higher prices sap domestic demand. Retail sales will contract for a second straight month in March, according to the median estimate in a Bloomberg survey of 28 economists.

“The central bank is acting, it’s vigilant and will keep acting,” Tombini said in an interview with Globo television on May 10. The bank “will do what’s needed to consolidate inflation at lower levels this year and next.”

The swap rate contract maturing in January 2015, the most traded in Sao Paulo, gained 11 basis points, or 0.11 percentage point, to 8.35 percent on May 10, as traders increased bets policy makers may opt to raise borrowing costs by half a percentage point after a quarter-point increase in April.

‘Gradual Recovery’

Annual inflation, which has remained above the 4.5 percent mid-point of the central bank’s target range since Tombini took office in January 2011, slowed to 6.49 percent last month. Still, consumer prices increased 0.55 percent, more than the 0.48 percent median estimate in a Bloomberg survey of 37 analysts.

Tombini told Globo that annual inflation will slow between July and December. House-wives “will see that inflation is easing” over the next months, he said.

Inflation quickened even as growth slowed. The world’s second-biggest emerging economy expanded 0.9 percent last year, less than the U.S., Japan and other major emerging markets, including China, Mexico, India, Russia and South Africa.

The fight against inflation “is in line with the gradual recovery of the economy that we will see in Brazil this year,” Tombini said.

The central bank expects gross domestic product to expand 3.1 percent this year, the fastest pace since 2010, according to its March quarterly inflation report.

Retail sales fell 0.5 percent in March, after contracting 0.4 percent in February, according the median estimate in Bloomberg’s survey. The data is scheduled to be released May 15 by the national statistics agency.

Step Up

Brazil’s central bank may have to step up the pace of interest rate increases to tame above-target inflation, its director for economic policy, Carlos Hamilton, said April 25.

In the minutes of the bank’s April 16-17 meeting, the board said that an unclear outlook for the world economy required a cautious monetary policy. Policy makers said slower global economic growth could help contain inflationary pressures.

Tombini said Brazil is the only country in the world facing faster inflation that is trying to tame price increases by raising rates. He said that slowing inflation back to target isn’t an “unreal” goal.

“We will pursue this target,” Tombini said. “‘We’re in the middle of a process and will do what it takes to slow inflation.”

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