MercoPress. South Atlantic News Agency

Brazil central bank insists inflation under control and growth picks up in second half

President Alexandre Tombini: convergence to 2012 targets

The jump in Brazilian consumer prices this month was a temporary reversal and won’t jeopardize the government’s 4.5% inflation target this year, central bank President Alexandre Tombini said on Monday.

Prices as measured by the mid-month IPCA-15 index rose 0.33% in July, exceeding all private estimates. Consumer prices rose 5.24% from a year earlier, the national statistics agency reported July 20.

Brazil’s economy will accelerate in the second half without stoking inflation, Tombini said on Monday during a press conference. The mid-July consumer price reading was affected by bad weather that pushed up food prices, he said.

“Convergence will take place, this process is not a linear one, it is not a homogeneous one,” Tombini said in a conference call with international reporters. “Between August and December there is a lot of room for the process of convergence to continue and for us to get to our target for 2012”.

The central bank has cut the benchmark Selic rate by 450 basis points since August to a record low 8%, as the world’s largest emerging market after China struggles to spur growth and offset the effects of Europe’s debt crisis.

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo fell six basis points, or 0.06 percentage point, to 7.69%. Traders are betting the bank will lower the Selic by as much as 75 basis points by November.

Tombini repeated the government’s assessment that growth will quicken to a pace of about 4% by year-end as local markets react to monetary stimulus and government tax breaks, reviving growth.

Preliminary data from June show a reduction in loan delinquency of more than 90 days, and a sharper reduction in delinquency of 15 to 90 days, thus opening up more room for economic growth, Tombini said at the event in Brasilia.

Tombini said that expanding credit in June and record low levels of unemployment point to a pickup and that he’s “comfortable” with his outlook for stronger growth in the 2.5 trillion dollars economy.

An 8.6% slide in the Ral this year is also helping revive manufacturing, as stockpiles have fallen since the start of the year, he added. Brazil’s GDP grew 0.8% at an annualized rate in the first quarter.

The central bank forecasts growth will reach 2.5% this year, while economists surveyed by the bank predict expansion of 1.9%. However authorities are slightly more upbeat, with the Finance Ministry forecasting 3% growth, even when the official estimate was revised down last week from 4.5% previously.

Any of these forecasts would be the weakest growth in the world's No.6 economy since 2009, when it contracted slightly, and a far cry from the 7.5% boom seen in 2010.