Brazil central bank admits difficulties in taming stubbornly high inflation
Brazil’s Central Bank will keep a close eye on the economy to see if there is a need for any action to tame stubbornly high inflation, the bank's chief Alexandre Tombini said in a presentation to the Senate's economic affairs committee
“The Central Bank is monitoring the evolution of the economic scenario to evaluate the need for other measures to battle inflation,” Tombini said.
He said the Central Bank will analyze upcoming inflation data for March to decide on future steps.
Annual inflation in the month to mid-March climbed to 6.43%, dangerously close to the ceiling of the official target range of 6.5%. Economists have raised their forecasts for inflation, suggesting policymakers will need to raise interest rates to keep price expectations under control.
Economists disagree, however, on when the bank will hike rates and point to upcoming inflation data as key to determining the timing.
Market traders widely expect the central bank to keep its benchmark Selic rate at the current record lows of 7.25% when it next meets on April 17 to avoid disrupting a still timid economic recovery.
Recent economic indicators show the recovery in Brazil’s economy remains uneven despite a barrage of government stimulus measures that include tax breaks, lower energy costs and billions of dollars in cheap credit.
Tombini denied the bank is under pressure from President Dilma Rousseff's government to make economic growth a priority and keep interest rates low even if inflation remains high.
He said the bank has already modified monetary policy by explicitly communicating its worries about high inflation and signalling a rate hike is possible if needed. He said the aim of that change in message is to have an impact on inflation expectations.
The Central Bank has raised its inflation forecasts to more than 5% for 2013 and 2014, well above the 4.5% centre of the target range which has a tolerance of plus or minus two percentage points.