Banco Central do Brasil also said in its very brief statement that the decision to hold the rate steady was without any bias and all members of the Copom committee had voted in favor of the decision.
In November the central bank froze rates for the first time after 10 consecutive cuts and introduced the statement that keeping rates steady for a "prolonged period" was the most appropriate strategy to ensure that inflation would return to the bank's target.
This guidance was repeated at the bank's previous meeting in January, but inflation has continued to accelerate and economic growth is improving, fueling expectations that rates may soon be raised.
Brazil's inflation rate picked up to 6.15 percent in January from December's 5.84 percent, the seventh month in a row with rising prices. The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points.
Brazil's Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third for annual growth of 1.4 percent, up from 0.9 percent in the third quarter.
The central bank started cutting interest rates in August 2011 when economic growth began slowing, and slashed rates by a total of 525 basis points between then and November 2012.
www.CentralBankNews.info
Brazil's economy grew 1.35% in 2012, says central bank
Source: XINHUA | 2013-2-21 | 
ONLINE EDITION
ONLINE EDITION
BRASILIA, Feb. 20 (Xinhua) -- Brazil's economy grew 1.35 percent in 2012, well above the market forecast of 1 percent, estimated the country's central bank Wednesday.
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank's growth estimate is higher than the market prediction, it still falls short of the government's 4 percent growth projection announced at the beginning of last year.
The country's economic activity in December rose 0.26 percent compared with the previous month, lower than November's 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank's overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
The official figure will be released by the Brazilian Institute of Geography and Statistics (IBGE) on March 1.
While the central bank's growth estimate is higher than the market prediction, it still falls short of the government's 4 percent growth projection announced at the beginning of last year.
The country's economic activity in December rose 0.26 percent compared with the previous month, lower than November's 0.57 percent compared with October, indicating an economic slowdown towards the end of last year, according to the bank.
In 2012, the Brazilian government announced a series of measures to stimulate growth, including cutting the central bank's overnight rate to a record-low 7.25 percent, reducing taxes for industries, increasing credits and lowering prices.
For 2013, the government forecasts a 4 percent gr
Brazil's Tombini: Interest Rate Will Be Adjusted as Needed
By Dow Jones Business News, February 19, 2013, 10:02:00 AM EDT
BRASILIA--Brazil's central bank plans to maintain firm control of inflation and will adjust its interest-rate policy as necessary to do so, central bank president Alexandre Tombini said Tuesday.
Speaking at the unveiling of an administrative cost-cutting program, Mr. Tombini said that the bank remained poised to act on rising prices and that there was no risk
of uncontrolled inflation in Brazil's economy.
of uncontrolled inflation in Brazil's economy.
"When necessary as determined by the outlook for inflation, the posture of the central bank in relation to monetary policy will be adjusted adequately," he said.
Mr. Tombini, however, also said that he believed interest rates would tend to vary "within a lower range than in the past."
Some analysts have speculated that the central bank could act to raise its base Selic interest rate as early as the second quarter of this year after the IPCA consumer-price index topped 6% in the 12 months through January. The inflation rate remains well above the 4.5% centerpoint of the country's inflation target range.
The Selic rate currently stands at a record low of 7.25%.
Mr. Tombini's comments Tuesday come after Brazilian Finance Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.
Minister Guido Mantega at a meeting of Group of 20 officials late last week said that the country planned to rely on monetary-policy measures rather than foreign-exchange policy measures to maintain inflation under control.Brazil Anticipates Higher Interest Rates To Control Inflation
BRASILIA, Feb 18 (BERNAMA-NNN- MERCOPRESS) - Brazil's Finance minister Guido Mantega in Moscow for the G-20 meeting, said that inflation above the government's target raises a yellow flag and that monetary policy, not the exchange rate, is the right tool to control prices.
"The interest rate isn't fixed. If you have more worrying inflation, it can move, but this is up to the central bank to decide," Mantega said in an interview from Moscow. "The government will do what it takes to keep inflation under control." Inflation which has exceeded the 4.5% target in the past 29 months, quickened to 6.15% in January.
Mantega said the government will not allow the currency to over-appreciate in a bid to rein in consumer prices after the currency strengthened to a nine-month high last week. A stronger currency helps tame inflation by making imports cheaper.
Traders see a 50% chance of policy makers raising the Selic rate to 7.5% from 7.25% in April, Diego Donadio, Latin America strategist at Banco BNP Paribas Brasil SA, said in a telephone interview.
Brazil's real appreciated 0.4% to 1.9582 per dollar last week, the strongest level since May 10, on speculation the government would allow the currency to appreciate to contain inflation. A drop in U.S. jobless claims also fostered demand for emerging-market assets.
"We will not allow for an over-appreciation of the Real," Mantega said, adding that the government isn't thinking of a specific level. "We won't tolerate abnormal fluctuations".
Speculation that Brazil was changing policy and seeking a stronger currency to help tame inflation started last month after the central bank surprised the markets with an intervention in swaps to prop up the Real.
The Real rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed US$1.85 billion of currency swaps about to expire, refraining from buying dollars to settle the contracts.
On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.
The Brazilian central bank swung in 2012 between selling currency swaps to prevent the Real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the Real from strengthening beyond US$2.
The central bank Monetary Policy Committee, Copom next meeting is scheduled for March 5/6.
"The interest rate isn't fixed. If you have more worrying inflation, it can move, but this is up to the central bank to decide," Mantega said in an interview from Moscow. "The government will do what it takes to keep inflation under control." Inflation which has exceeded the 4.5% target in the past 29 months, quickened to 6.15% in January.
Mantega said the government will not allow the currency to over-appreciate in a bid to rein in consumer prices after the currency strengthened to a nine-month high last week. A stronger currency helps tame inflation by making imports cheaper.
Traders see a 50% chance of policy makers raising the Selic rate to 7.5% from 7.25% in April, Diego Donadio, Latin America strategist at Banco BNP Paribas Brasil SA, said in a telephone interview.
Brazil's real appreciated 0.4% to 1.9582 per dollar last week, the strongest level since May 10, on speculation the government would allow the currency to appreciate to contain inflation. A drop in U.S. jobless claims also fostered demand for emerging-market assets.
"We will not allow for an over-appreciation of the Real," Mantega said, adding that the government isn't thinking of a specific level. "We won't tolerate abnormal fluctuations".
Speculation that Brazil was changing policy and seeking a stronger currency to help tame inflation started last month after the central bank surprised the markets with an intervention in swaps to prop up the Real.
The Real rallied to a level stronger than 2 per dollar on Jan. 28 for the first time since July after the central bank renewed US$1.85 billion of currency swaps about to expire, refraining from buying dollars to settle the contracts.
On Jan. 31, the government exempted foreigners from a tax on real-estate funds traded on the stock exchange, spurring speculation that inflows will help sustain the real.
The Brazilian central bank swung in 2012 between selling currency swaps to prevent the Real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the Real from strengthening beyond US$2.
The central bank Monetary Policy Committee, Copom next meeting is scheduled for March 5/6.
WRAPUP-Brazil's central bank points to new FX trading band
* Real initially rallies as gov't seen favoring strong FX
* Central bank intervenes to halt currency gains
* Mantega suggests gov't willing to accept stronger real
* Analysts see new trading band of 1.95-2.05 per dollar
By Walter Brandimarte
RIO DE JANEIRO, Feb 8 (Reuters) - Brazil's central bank intervened to halt a currency rally on Friday, essentially setting the boundaries of a new informal trading band that government officials hope will help curb inflation without hurting exporters.
The intervention followed a week of intense volatility in the currency market as investors scrambled to figure out how policymakers were adjusting Brazil's foreign exchange policy. The real, which stabilized around 1.97 per dollar in the afternoon, is now likely to enter the traditional Carnival lull that will halt Brazilian markets for most of next week.
The real was rallying for a second day early on Friday after comments by a number of policymakers, including Finance Minister Guido Mantega, suggested the government was ready to accept a stronger currency to cheapen the price of imported goods and put a lid on inflation.
In an interview with Reuters on Thursday night, Mantega said the real, which last week gained past the level of 2 per dollar for the first time in seven months, "has found a reasonable floating band."
The minister, who has always defended a weaker real to support exporters, sounded more amenable to a stronger currency as he cited the 1.85-per-dollar threshold as an example of a level that would not be allowed.
His remark was interpreted as a green light for a stronger real, driving the currency more than 1 percent higher early on the day. It added to comments by central bank chief Alexandre Tombini, who on Thursday said he was worried about inflation in the short term.
The real had already gained about 0.8 percent on Thursday as investors speculated the government would use the exchange rate to curb inflation, which is dangerously close to the ceiling of a government target.
Brazil's currency had lost nearly 30 percent against the dollar between July 2011 and last November, but gained about 8 percent since then.
TOO FAST?
Signs that the government was not happy about the speed of appreciation of the real in the past couple of days were already evident early on Friday, when a source on President Dilma Rousseff's economic team told Reuters gains had been "somewhat exaggerated."
After piercing the level of 2 per dollar last week, market analysts estimated the real's informal trading range, which for months was set at 2.0 to 2.1 per dollar, was shifting to something around 1.95 to 2.05.
Investors, eager to test that theory, pushed the real to a nine-month high of 1.9510 per dollar this morning.
That was when the central bank intervened, offering to sell as much as 30,000 reverse currency swaps - derivative contracts that emulate the sale of dollars in the futures market and are often used by policymakers to weaken the currency.
"They seem to be doing two things: one is to try to slow down the appreciation of the real, but they also seem to be putting a boundary for the real at 1.95 per dollar, at least for now," said Enrique Alvarez, chief of Latin America research at IDEAglobal in New York.
Further adding to the notion of a new trading band around the level of 2 per dollar, Development Minister Fernando Pimentel told Valor Economico newspaper that a real between 1.96 and 2.05 per dollar would be acceptable to industry.
UPDATE 4-Brazil inflation spike fans bets of interest rate hike
* IPCA index rises 0.86 percent in January
* Monthly inflation highest since April 2005
* Futures market bets on 100 bps hike this year
* Twelve-month inflation edges up to 6.15 percent
* Central bank says it is worried, uncomfortable
By Silvio Cascione
SAO PAULO, Feb 7 (Reuters) - Brazil's inflation accelerated
to the fastest rate in nearly eight years in January, raising
bets of an interest rate hike this year that could complicate
the government's drive to reignite a near-stagnant economy.
The Brazilian currency, the real , also jumped
on the news, hitting a 9-month high against the dollar after
central bank president Alexandre Tombini said he was worried
about inflation.
A central bank source told Reuters that 12-month inflation
will remain slightly above 6 percent through the first half of
2013, dangerously near the 6.5 percent ceiling of the government
target, but that a more stable exchange rate will help inflation
ease "a lot" in the second half of the year.
The country's benchmark IPCA consumer price index
rose 0.86 percent in January, the highest monthly
reading since April 2005, government data showed on Thursday.
In the 12 months through January, inflation
rose to 6.15 percent, the highest reading in a year. The
government targets inflation at 4.5 percent, with a tolerance
margin of plus or minus 2 percentage points.
Interest rate futures rose across the board in the
BM&FBovespa exchange, suggesting more bets that the central bank
would raise its benchmark interest rate by around 100 basis
points this year, according to traders. The rate has been cut to
an all-time low of 7.25 percent to stimulate economic growth.
Low interest rates and a depreciated currency are key
elements of President Dilma Rousseff's plans to boost investment
and output in Brazil's manufacturing industries. Taming
inflation has also been a top priority for her, but January's
number shows she just can't have it all.
"The central bank will tolerate a stronger real in an effort
to limit imported inflation, but this will come at the expense
of a further deterioration in Brazil's external competitiveness,
which will weigh on economic growth," wrote Neil Shearing, chief
emerging markets economist at Capital Economics in London.
In an interview posted on O Globo website, Tombini said he
is feeling uncomfortable.
"Inflation worries us in the short term. It's very
resilient, but it's not out of control," Tombini told O Globo
financial journalist Miriam Leitao.
Asked whether it was time for the central bank to adjust its
monetary policy, Tombini said he is "paying attention to
inflation.".
The Brazilian real strengthened about 1.1 percent to 1.965
reais to the dollar after the publication of Tombini's remarks.
A Reuters poll showed on Wednesday that analysts expected the
real to remain around 2 per dollar for the next 12 months.
Food and cigarettes were the main inflation drivers in
January, though analysts noted accelerating price rises for
nearly three of every four product categories. Core measures
were also stronger than in the same month a year ago, suggesting
the recent inflation spike is not likely to fade quickly.
"If inflation worsens in the next two or three months, that
can lead to a monetary tightening later," said Carlos Kawall,
chief economist at J.Safra in Sao Paulo.
Brazil is alone in its struggle against inflation among the
largest market-friendly Latin American economies. Inflation has
subsided elsewhere in the region, such as in Mexico and Chile,
as a spike in global food prices fades.
The central bank cut interest rates 10 straight times
through October 2012, saying Brazil no longer needed one of the
highest borrowing costs in the world to tame inflation. With low
interest rates as a top priority, the government has been trying
to use other tools to fight price rises, such as tax breaks.
A government-sponsored reduction in electricity power rates
prevented January inflation from reaching 1 percent, said Juan
Jensen, an economist with Tendencias Consultoria in Sao Paulo.
It should also limit the monthly price rise in February,
though annual inflation is expected to remain above 6 percent -
and possibly even breach the target ceiling - by at least
mid-year, economists said.
The government is also mulling tax cuts on food staples,
Rousseff and Finance Minister Guido Mantega said recently. Such
measures will probably force the government to miss a key budget
target this year.
The January IPCA index had been expected to rise 0.84
percent, from an increase of 0.79 percent in December, according
to the median forecast of 31 economists surveyed by Reuters.
Forecasts for the rise ranged from 0.78 to 0.90 percent.
Personal expenses rose 1.55 percent from December; the
category includes cigarettes, whose prices spiked 10.11 percent.
Food prices rose 1.99 percent.
UPDATE 2-Brazil central bank signals more interest rate cuts unlikely
Brazil Says Monetary Policy Not Best Tool to Lift Growth Now
Brazil’s central bank said additional monetary policy stimulus will fail to boost economic growth that is recovering more slowly than expected due to limited supply.
Policy makers, in the minutes to their Jan. 15-16 meeting published today, said the balance of risks for inflation has worsened and reiterated that the best policy for bringing consumer price increases to the 4.5 percent target is to keep rates at a record low for a “sufficiently prolonged period.”
While inflation is slowing in Mexico and Chile, price pressures are building in Brazil as demand remains robust amid record low interest rates and unemployment. At the same time, a contraction in investment and industrial output is offsetting President Dilma Rousseff’s efforts to revive the slowest growth in three years by stimulating consumption.
The central bank “considers that the recovery of domestic economic activity, which is slower than expected, is essentially due to supply limitations,” the minutes said. “Given their nature, these impediments cannot be addressed by monetary policy, which is by definition an instrument to control demand.”
Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose five basis points, or 0.05 percentage point, to 7.91 percent at 9:42 a.m. local time. The real strengthened 0.3 percent to 2.0353 per U.S. dollar.
Improve Productivity
The central bank signaled in its minutes that it will stay put on rates and that the government needs to step up measures to improve productivity, said Neil Shearing, chief emerging markets economist at Capital Economics Ltd.
“The minutes reinforce the idea that rates are going nowhere for the time being,” Shearing said in a telephone interview from London. “This puts the ball back in the government’s court and says, ’We’ve done all we can. Your side of the bargain is to improve the supply side of the economy and productivity.’ That requires structural reform measures.”
The bank’s board, led by President Alexandre Tombini, voted unanimously in January to hold the benchmark Selic rate at 7.25 percent for the second straight meeting. While the bank estimates Brazil’s $2.5 trillion economy grew 1 percent last year, the slowest among major emerging markets, policy makers kept borrowing costs steady as food price shocks and consumer demand caused inflation to accelerate faster than economists’ forecasts for the seventh straight month through mid-January.
Fragile Investment
While investments remain fragile due to increased uncertainty and a slow recovery in confidence, domestic demand will continue to be fueled by low interest rates, moderate credit expansion, government social spending and a tight labor market, the central bank said in today’s minutes.
Rousseff today implemented energy price cuts to consumers and industry that were deeper and took effect earlier than expected in a move to increase competitiveness and tame inflation.
The government has also cut taxes on payrolls and consumer goods, eased reserve requirements for banks that provide credit for capital goods investment and announced plans to attract billions of reais in infrastructure investments. So far, the world’s sixth-largest economy has responded unevenly to the stimulus measures.
Retail sales in November increased for the sixth straight month and grew 8.4 percent over the same period last year, while industrial production in November fell for the second time in three months on lower capital goods investments. Analysts covering Brazil have cut their 2013 growth forecasts in 9 of the last 10 weeks, to 3.19 percent, according to the latest weekly central bank survey.
Inflation quickened to 6.02 percent through mid-January, the national statistics agency said yesterday. Annualized consumer price increases have exceeded the central bank’s target for the last 29 months.
To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net
Brazil Central Bank Faces Credibility Test in Inflation Fight
--Brazil's January mid-month IPCA-15 jumps on food, service-sector prices
--Rolling 12-month inflation rate tops 6%, above government's 4.5% target
--Brazil Central Bank needs to tip market on strategy, economist says
By Jeff Fick
RIO DE JANEIRO--Brazil's consumer price index showed a surprising surge in the first half of January, undermining the credibility of the country's central bank as Latin America's largest economy appeared stuck in stagflation.
The mid-month IPCA-15 consumer price index advanced a bigger-than-expected 0.88% through mid-January, up from a 0.69% gain through mid-December, the Brazilian Institute of Geography and Statistics, or IBGE, said Wednesday. More important, the rolling 12-month rate accelerated to 6.02%--rising further above the government's 4.5% target but within the tolerance band of plus or minus two percentage points. Brazil ended 2012 with inflation of 5.84%, down from 6.5% the previous year.
The upswing in prices at the start of 2013 followed growing inflationary pressures in the second half of 2012 despite sluggish economic growth, raising concerns about whether the Brazilian Central Bank has allowed inflation to get out of control, economists said. The market is no longer buying the central bank's explanation that temporary price shocks are behind inflationary pressures and a gloomy global economic scenario will drive inflation lower.
January's inflation imprint "reinforces the perception that inflation is getting worse and worse," Espirito Santo Investment Bank said in a research report. While food prices continued to climb in the first half of January, a jump in service-sector prices showed thatpressures were broad, the bank said.
Some relief is expected, but it will likely be temporary, economists said. Food prices typically stabilize, or even decline, as harvest season ramps up in the late first and early second quarters, and an expected reduction in electricity rates should shave about a half-percentage point off inflation. But that will only create "a false perception that inflation has improved quickly," Espirito Santo said.
Complicating matters is a sluggish economy that has not yet responded to record-low interest rates and government stimulus measures. Brazil expected a rebound in the second half of 2012 that never materialized, with the economy expanding at an annualized rate of 2.4% in the third quarter--well below government and market forecasts. Brazil's economy only grew by about 1% in 2012.
"Brazil is seeing stagflation," said Tony Volpon, managing director at Nomura Securities International. "We all know stagflation is the worst possible situation for any central bank to be in, and this central bank has made the choice to react on the side of growth."
The latest inflation figures will also increase the focus on Thursday's release of minutes from last week's central bank meeting, which included changes to the post-meeting statement.
The central bank held interest rates steady at a record-low 7.25%, pledging to leave rates at that level for a "sufficiently prolonged period." But in a distinct change from previous statements, the bank signaled it may be more concerned about growth than inflation. While the bank recognized Brazil's economic rebound has been "less intense than expected," central bankers appeared to downplay inflation concerns by saying price risks have increased only "in the short term."
While the central bank made a decision to act rather than "suffering from deer-in-the-headlights syndrome" when it embarked on a rate-cutting cycle in August 2011, Mr. Volpon said that tilting monetary policy toward growth has allowed inflation expectations to rise above the bank's mandate of 4.5%. "The strategy has limits, and we're seeing those limits," Mr. Volpon said. "Inflation is getting worse and the economy is not going anywhere."
Inflation expectations have become less important under the leadership of Central Bank President Alexandre Tombini compared with former president Henrique Meirelles. "And that's a major mistake," Mr. Volpon said. If the central bank wants to retain what little credibility it has left in the market, there has to be better communication, Mr. Volpon added.
"The central bank needs to tell us what their game plan is," Mr. Volpon said. "They need to tell us that there is a limit to how far they are willing to let inflation go before they act."
Nomura expects inflation to end 2013 at 6%, forcing the central bank to start raising interest rates to 8.25% by the end of the year.
--Rolling 12-month inflation rate tops 6%, above government's 4.5% target
--Brazil Central Bank needs to tip market on strategy, economist says
By Jeff Fick
RIO DE JANEIRO--Brazil's consumer price index showed a surprising surge in the first half of January, undermining the credibility of the country's central bank as Latin America's largest economy appeared stuck in stagflation.
The mid-month IPCA-15 consumer price index advanced a bigger-than-expected 0.88% through mid-January, up from a 0.69% gain through mid-December, the Brazilian Institute of Geography and Statistics, or IBGE, said Wednesday. More important, the rolling 12-month rate accelerated to 6.02%--rising further above the government's 4.5% target but within the tolerance band of plus or minus two percentage points. Brazil ended 2012 with inflation of 5.84%, down from 6.5% the previous year.
The upswing in prices at the start of 2013 followed growing inflationary pressures in the second half of 2012 despite sluggish economic growth, raising concerns about whether the Brazilian Central Bank has allowed inflation to get out of control, economists said. The market is no longer buying the central bank's explanation that temporary price shocks are behind inflationary pressures and a gloomy global economic scenario will drive inflation lower.
January's inflation imprint "reinforces the perception that inflation is getting worse and worse," Espirito Santo Investment Bank said in a research report. While food prices continued to climb in the first half of January, a jump in service-sector prices showed thatpressures were broad, the bank said.
Some relief is expected, but it will likely be temporary, economists said. Food prices typically stabilize, or even decline, as harvest season ramps up in the late first and early second quarters, and an expected reduction in electricity rates should shave about a half-percentage point off inflation. But that will only create "a false perception that inflation has improved quickly," Espirito Santo said.
Complicating matters is a sluggish economy that has not yet responded to record-low interest rates and government stimulus measures. Brazil expected a rebound in the second half of 2012 that never materialized, with the economy expanding at an annualized rate of 2.4% in the third quarter--well below government and market forecasts. Brazil's economy only grew by about 1% in 2012.
"Brazil is seeing stagflation," said Tony Volpon, managing director at Nomura Securities International. "We all know stagflation is the worst possible situation for any central bank to be in, and this central bank has made the choice to react on the side of growth."
The latest inflation figures will also increase the focus on Thursday's release of minutes from last week's central bank meeting, which included changes to the post-meeting statement.
The central bank held interest rates steady at a record-low 7.25%, pledging to leave rates at that level for a "sufficiently prolonged period." But in a distinct change from previous statements, the bank signaled it may be more concerned about growth than inflation. While the bank recognized Brazil's economic rebound has been "less intense than expected," central bankers appeared to downplay inflation concerns by saying price risks have increased only "in the short term."
While the central bank made a decision to act rather than "suffering from deer-in-the-headlights syndrome" when it embarked on a rate-cutting cycle in August 2011, Mr. Volpon said that tilting monetary policy toward growth has allowed inflation expectations to rise above the bank's mandate of 4.5%. "The strategy has limits, and we're seeing those limits," Mr. Volpon said. "Inflation is getting worse and the economy is not going anywhere."
Inflation expectations have become less important under the leadership of Central Bank President Alexandre Tombini compared with former president Henrique Meirelles. "And that's a major mistake," Mr. Volpon said. If the central bank wants to retain what little credibility it has left in the market, there has to be better communication, Mr. Volpon added.
"The central bank needs to tell us what their game plan is," Mr. Volpon said. "They need to tell us that there is a limit to how far they are willing to let inflation go before they act."
Nomura expects inflation to end 2013 at 6%, forcing the central bank to start raising interest rates to 8.25% by the end of the year.
BRASILIA: New projections by Brazil's central bank show a slightly more benign outlook for inflation this year, a government source told Reuters on Tuesday, giving President Dilma Rousseff some breathing room as she tries to revive the sputtering economy.
The bank's latest projections suggest that an upcoming 20 percent cut in electricity prices should shave a full percentage point off consumer inflation by the end of 2013, the source said, speaking on condition of anonymity.
The bank's estimate of the electricity cuts' disinflationary effect is about double that of many private analysts.
The more dovish forecast could make it easier for Rousseff to enact tax cuts and other stimulus measures without worrying about inflation breaching the bank's target range this year.
Independent economists on average see the IPCA inflation index finishing 2013 at 5.65 percent.
The central bank declined comment.
The bank also anticipates that an imminent rise in gasoline prices will push the IPCA consumer price index about 0.3 of a percentage point higher in 2013, the source said.
That forecast is based on Rousseff's government authorizing a roughly 7 percent increase in gasoline prices, although no final decision on the actual amount is expected until at least the beginning of February, the source said.
The central bank has declined to publicly release its forecast for the effect higher gasoline prices could have on inflation, because Rousseff has not made a decision yet.
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