Brazil’s Central Bank Said to Take Steps Needed to Bring 2012 CPI to 4.5%

Brazil’s central bank will take the necessary steps to ensure that inflation slows to its target over the course of 2012, a government official familiar with monetary policy strategy said.

Policy makers in Latin America’s biggest economy will also attempt to bring 2011 inflation as close as possible to the 4.5 percent target, said the official, who asked not to be named because he isn’t authorized to discuss the issues publicly.

“This demonstration that they are committed to bringing inflation back to target by all means allays a bit the feeling that the central bank won’t raise rates again this year,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank in Sao Paulo. “It reinforces the idea the central bank will increase rates in April.”

Traders are wagering policy makers will slow the pace of interest rate increases this month, after the central bank said in its March 30 inflation report that the costs of meeting the consumer price target this year were “too high.”

The yield on interest rate futures contract maturing January 2012, the most traded in Sao Paulo, rose one basis point to 12.16 percent at 10:29 a.m. New York time. Earlier, the contract fell as much as two basis points.

The bank raised borrowing costs 0.5 percentage point at its January and March meetings, to 11.75 percent. Traders expect the central bank to raise rates by a quarter-point to 12 percent this month, interest rate futures show.
Higher Forecast

Economists covering the Brazilian economy raised their 2012 consumer price forecast for a second straight week, the central bank’s weekly survey published today showed.

According to the April 1 central bank survey of about 100 economists published today, Inflation will end 2012 at 5 percent, up from a week earlier forecast of 4.91 percent.

Economists in the survey raised their 2011 inflation forecast for a fourth week, to 6.02 percent, up from a week- earlier forecast of 6.00 percent.

The central bank’s analysis is that inflation expectations are being driven by current price indexes, which rose to 6.1 percent in the 12 months through mid-March, the official said. Commodity price increases probably slowed in March, the official said.