MercoPress. South Atlantic News Agency

Brazil expects to tame inflation with the currency and energy rate cuts

Arno Agustin does not see the need for monetary policy

The Brazilian currency and energy rate cuts will help tame inflation this year, allowing the Brazilian central bank to keep interest rates at a record low even as growth accelerates, said Treasury Secretary Arno Augustin.

The weakening Real last year was one of the main drivers of inflation that exceeded the central bank’s 4.5% for a third consecutive year, Arno Augustin said in an interview from his office in Brasilia. The inflationary impact of Brazil’s effort to bring its exchange rate to a “less distorted level” was absorbed in 2012, he said.

The currency “is one element why I’m more confident about what will happen to inflation in 2013” said Augustin. “I sincerely don’t see the need of monetary policy to help” contain inflation.

Brazil’s inflation in December exceeded economists’ forecast for a sixth straight month, pushing annual price increases to 5.84%. The central bank has cut its benchmark lending rate by 5.25 percentage points since August 2011, to a record 7.25%, the most among Group of 20 nations, and this week again confirmed the policy.

The Real weakened 11.4% in the past 12 months, the worst performance amid the most traded currencies after the Japanese yen.

Brazil’s economy expanded 1% last year and will grow 3.3% in the four quarters through the third quarter of 2013, the central bank estimates