Meirelles ‘Confident' Brazil Inflation to Meet Target

May 27, 2010, 4:58 PM EDT

By Michael Patterson and Laura Price

May 27 (Bloomberg) -- Henrique Meirelles, Brazil's longest serving head of the central bank, said he's "confident" inflation will meet the nation's target because the country has already started raising interest rates.

Brazil is seeing "some decline" in exports to Europe as the region's indebted nations struggle to cut budget deficits, Meirelles said in an interview with Bloomberg Television today. The central bank will update its forecasts for economic growth next month, he said at Bloomberg's London office.

Policy makers last month raised the benchmark interest rate, after keeping it at a record low for nine months, amid forecasts that Latin America's biggest economy will expand at the fastest pace in two decades this year. Analysts forecast that accelerating demand will drive the benchmark inflation rate above the government's target this year and next.

"We have at this point a solid track record in terms of keeping inflation on target," Meirelles said. "We are confident that we will bring inflation to target."

Meirelles, before raising the Selic rate to 9.5 percent from 8.75 percent, on April 25 said that it would take "vigorous action" by the central bank to bring consumer prices back to target.
The national monetary council sets Brazil's inflation target, currently 4.5 percent plus or minus two percentage points for this year and 2011. The council comprises the central bank president, finance minister and budget minister.

Domestic Consumption

Inflation, as measured by the government's benchmark IPCA- 15 price index, rose 5.26 percent in the 12 months through mid- May, the highest rate in a year. Annual price increases have exceeded the government's target in each month this year.

Brazil's benchmark Bovespa stock index has fallen 14 percent since reaching its high for 2010 on April 8 amid concern Europe's weakest economies will have difficulty managing their budget deficits without derailing the economic recovery.

In the overnight interest-rate futures market, the yield on the contract due in January, the most active on the Sao Paulo exchange, gained 10 basis points, or 0.1 percentage point, to 11.01 percent at 4:30 p.m. New York time.

Brazil is strong enough to face financial turbulence "with serenity" because domestic consumption is driving growth and its debt to gross domestic product ratio and nominal deficit are "low," Meirelles said.

"This gives Brazil the conditions to confront the crisis with serenity," he said. "But we've always warned the markets against excess optimism and against excess pessimism."

‘Let's See'

Analysts covering the Brazilian economy expect the central bank to increase the benchmark rate to 10.25 percent in June in a bid to rein in consumer prices, according to the median forecast in a May 21 central bank survey of economists covering Brazil. The bank will increase the rate to 11.75 percent by year-end, the same survey shows.

Brazil's economy is expected to grow 6.5 percent this year, according to the survey. The bank's forecast in December was "substantially above" the market forecast that month, Meirelles said. Responding to whether the central bank will raise its forecast in June, Meirelles said "Let's see."
Meirelles, 64, said he has no immediate plans to run for office in future.

The central bank president in April decided to stay at his post after giving up offers to run for the Senate and governor of his home state of Goias. The announcement ended nine months of speculation on whether he would step down to run in the October elections.