Brazil Says Inflation Contained by Gradual Recovery

Brazil’s central bank sees a gradual recovery in Latin America’s biggest economy that will contain inflation, policy makers said in the minutes of their last board meeting.

While the bank’s inflation forecast has risen since policy makers last met in October, its outlook continues to hover “around” the 4.5 percent midpoint of the target range, the bank said today in the minutes to their Dec. 8-9 meeting posted on their Web site.

“Given this outlook for a gradual recovery, which has been corroborated so far by the economic data available, inflationary pressures will remain contained,” the bank said.

Brazil’s real fell for a third day against the dollar, weakening 0.8 percent to 1.7708 per dollar at 6:26 a.m. New York time. The yield on Brazil’s interest rate future due in January 2011 dropped seven basis points, or 0.07 percentage point, to 10.42 percent.

BNP Paribas reaffirmed its call that the so-called Selic rate will remain unchanged throughout 2010.

“The minutes show that economic activity is improving but at a pace that won’t generate inflationary pressures,” Diego Donadio, senior analyst at BNP, said in a phone interview in Sao Paulo.

The central bank last week kept the benchmark interest rate at a record low for a third straight meeting, saying the rate was consistent with a “non-inflationary recovery.”

Latin America’s biggest economy this year emerged from its first recession since 2003 after the government slashed taxes and pumped cash into the nation’s money markets while policy makers cut rates at five straight meetings.

The central bank slashed the Selic rate to 8.75 percent this year from a two-year high of 13.75 percent, before pausing in September on signs the economy was recovering from recession.

Yields on Brazil’s interest rate futures yesterday rose to the highest level in 10 months after payrolls expanded more than forecast in November, reinforcing speculation the central bank will increase borrowing costs in March.

External pressures on prices remain “benign” even as the global economic recovery shows signs of consolidating and commodity prices rise, the bank said today.