Schwab Says China to Tighten After Brazil Raises Rates

Faster inflation will prompt Brazil to be the first emerging market to raise interest rates before the end of this year and lead China to also tighten monetary policy, according to Charles Schwab Corp.’s Michelle Gibley.

“Inflation is stubbornly high in some of the larger countries, Brazil in particular,” Gibley, director of international research at San Francisco-based Charles Schwab, which has $2.04 trillion in assets, said in a phone interview. “There’s potential they could be the first to start tightening. In China, we’re also seeing the central bank somewhat concerned about inflation. The next move is probably more likely to be tightening than an easing move.”

Brazilian inflation accelerated to 6.31 percent in February, putting the annual rate above the midpoint of the central bank’s target for a 30th month. Quickening inflation may spur the central bank to raise the 7.25 percent Selic rate as early as this year, Gibley said. Policy makers said last week that price increases could breach the 6.5 percent upper limit of the bank’s target range for the first time in a decade.

China should be on “high alert” over inflation after February’s figures exceeded forecasts, central bank Governor Zhou Xiaochuan said last month. Consumer prices rose 3.2 percent in February, the most since April last year.

Latin America’s largest economy, Brazil has kept interest rates at a record low since the last reduction in October in an attempt to boost economic growth that slowed to 0.9 percent in 2012, the least in three years. The People’s Bank of China has left interest rates and lenders’ reserve-requirement ratios unchanged since July, while intensifying measures to curb growth in the property market.

Gibley said that she’s cautious on emerging markets, as countries such as Brazil and China enacting further monetary-policy tightening would further cut their growth rates.

“It doesn’t appear to be the right time to be entering emerging markets,” she said.