Tombini Tells Wall St. Journal Brazil Rate Pause Possible

Brazil’s central bank may pause its current cycle of rate increases as policy makers view a food price shock as temporary, the Wall Street Journal quoted central bank President Alexandre Tombini as saying.

The decision will depend on economic data as well as changes in the inflation outlook, the newspaper reported, citing Tombini in an interview in Washington. The central bank press office confirmed the content of the interview when contacted by Bloomberg News and said the institution announces monetary policy every six weeks.

The central bank has boosted benchmark Selic borrowing costs in nine straight meetings as above-target inflation threatens to damp economic growth, marking the longest tightening cycle among major world economies. Consumer prices have accelerated more than analyst forecasts twice in the first quarter as traders bet inflation will breach the target range in a year.

Inflation as measured by the benchmark IPCA index quickened to 0.92 percent in March from 0.69 percent in February, beating analyst estimates and pushing the annual rate to an eight-month high of 6.15 percent. The biggest factor in its acceleration was food and beverages. Policy makers target 4.5 percent inflation, plus or minus 2 percentage points.

Interest rate increases still are working through Brazil’s economy, Tombini said, according to the Wall Street Journal.

‘Target Regime’

“Once this food inflation passes, what we’ll see in coming months is monthly inflation indexes also going back down,” Tombini told reporters separately in Washington today. “Forecasts indicate we will end this year with inflation in line with what’s compatible with the target regime.”

Policy makers are working to ensure price shocks have a temporary impact, Tombini told reporters, adding that service prices are easing. His comments echoed minutes of the central bank’s April 1-2 meeting that were posted today where policy makers said the jump in food costs would be temporary, Luciano Rostagno, chief strategist at Banco Mizuho do Brasil SA, said by phone.

“There were doubts as to whether or not the minutes were up to date because they were released today, but the meeting took place before the March IPCA number,” Rostagno said. “Tombini is indicating that, even with the March inflation number, they continue to believe that they don’t have to raise interest rates in May.”

Swap rates on the contract maturing in January 2015 fell five basis points, or 0.05 percentage point, to 11.05 percent at 4:34 p.m. local time. The real weakened 0.7 percent to 2.2029 per U.S. dollar.

Total Tightening

Brazil since April last year has raised borrowing costs more times than any of the 49 central banks tracked by Bloomberg, with the total tightening of 375 basis points trailing only Turkey among major economies. Banco Central do Brasil halved the pace of increases to 25 basis points at the last two meetings following six straight half-point increases.

“Given the impact of monetary policy on inflation is cumulative and happens with delays, the committee considers that a significant part of the response of prices to the current monetary tightening cycle will still materialize,” policy makers said in the minutes published on the central bank website today.

Analysts polled April 4 by the central bank estimate Tombini will raise interest rates once more this year, leaving the Selic at 11.25 percent as economic growth slows by more than half a percentage point from 2013. They forecast inflation of 6.35 percent this year.

Breakeven inflation, a measure of consumer price estimates based on the gap in yields between inflation-linked government bonds and fixed-rate debt expiring in 2015, increased four basis points to 6.52 percent.

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