MercoPress. South Atlantic News Agency

Brazilian Central Bank anticipates more rate rises

The Brazilian Central Bank anticipated this Thursday it could accelerate the increase of the country's basic interest SELIC rate if oil prices and domestic inflation prospects keep worsening and annual prices don't keep to target.

The information comes from the Central Bank Monetary Policy Committee (Compom) minutes of last week's meeting when the basic reference Selic rate was increased 0,5% for the third consecutive month reaching 17,25%.

"Since October's meeting, there has been a slight reduction of international oil prices, an appreciation of the exchange rate and signals of some cooling of the Brazilian economy", admits Compom, "but these factors have been unable to sufficiently alter prospects of future inflation dynamics in spite of the evident change in monetary policy focus of the last few months".

"Because of this, Compom members understand that the gradual adjustment process of basic rates must continue to ensure the convergence of inflation with target trends for the relevant horizon of the monetary policy actions".

Further on Compom warns about the need that "the recent scenario of international oil prices does not deteriorate and that the rigidity of inflation expectations dynamics so far, does not revert", warning that if the distance between inflation and the monetary targets does not reduce satisfactorily, "the monetary authority is prepared to alter the rhythm and magnitude of the adjustment process for basic rates which was began last September".

Compom actually increased the Selic rate 0,25% last September, a further 0,50% last October. Inflation on the other hand for those months was, 0,33% and 0,44%.

Compom minutes also anticipate the "acceleration of prices during November because of the impact of several factors already defined for the month", such as phone rates and the price of alcohol gasoline.

Brazilian Central Bank inflation targets for 2004 and 2005 are 4,5% and 5,1% but with a maximum of 8% this year and 7,5% the following.

Market analysts estimate inflation this year will reach 7,19%. The broad consumers price index in the ten months of 2004 was 5,95% and 6,87% in the last twelve months.

In related news the Central Bank revealed that the current account surplus of October was a billion US dollars compared to 83 million a year ago, with direct investment reaching 1,3 billon against the 314 million US dollars of October 2003.

Current account surplus during the first ten months of 2004 is equivalent to 10,8 billion US dollars, 1,95% of Brazil's GDP. Direct foreign investment in Brazil January/October 2004 reached 13,7 billion US dollars and is estimated in 17 billion US dollars by the end of the twelve months.

Brazil's international reserves stand at 49 billion US dollars with total foreign debt adding to 203 billion US dollars, 182,6 billion medium and long term and 20,6 billion US dollars short term.