Brazil Can Grow Without Causing Bubble, Mantega Says

April 22, 2010

By Andre Soliani Costa and Adriana Brasileiro

April 22 (Bloomberg) -- Brazil's economy can grow without spurring out-of-control inflation and with no risk of a bubble in financial markets, Finance Minister Guido Mantega said.

"The economy is growing at 5 percent to 5.5 percent, so it's an economy that is heated, not overheated," Mantega told reporters in Washington today. "There is no risk of a bubble in Brazil."

Brazil's $1.6 trillion economy will expand 5.8 percent in 2010 as domestic demand and investment fuel output, according to central bank estimates. Record low borrowing costs helped Brazil pull out of its deepest recession in a decade in 2009 as government stimulus measures boosted consumer confidence.

The government is working to keep inflation under control and is removing tax breaks and other fiscal incentives that have led to an increase in domestic demand, Mantega said. He added that the central bank won't hesitate to act to control prices.

Accelerating inflation will force central bankers to raise borrowing costs by half a percentage point at their meeting next week to 9.25 percent from a record low 8.75 percent, according to the median forecast of 32 economists surveyed by Bloomberg.

Consumer prices as measured by the IPCA-15 index rose 5.22 percent in the 12 months through mid-April, the government's statistics agency said April 20. That exceeded the midpoint of the government's 4.5 percent target, plus or minus two percentage points, for the third month in a row.

Mantega said today he forecasts inflation at between 4.5 percent and 5 percent in 2010.