UPDATE 1-Brazil to announce bigger-than-expected power rate cuts-source

Wed Jan 23, 2013 11:11am EST

Related Topics

* Cuts are expected to help ease quickening inflation

* Rousseff plans to address nation later on Wednesday

By Leonardo Goy

BRASILIA, Jan 23 (Reuters) - Brazilian President Dilma Rousseff will announce bigger-than-expected reductions in electricity rates as early as Wednesday, a government source with direct knowledge of the plans told Reuters.

The government plans to cut household power rates by 18.5 percent on average and those for industrial consumers by between 32 and 34 percent, said the source on Wednesday, who declined to be quoted because the plans remain private. Rousseff plans to announce the rate reductions in a televised address later on Wednesday.

The decision to boost the size of the rate cuts highlights the administration's increased worries about a recent spike in consumer prices. Inflation in Brazil rose faster than expected in the month to mid-January, data released earlier on Wednesday showed.

The central bank's latest projections suggest that a 20 percent cut in electricity prices should shave a full percentage point off consumer inflation by the end of 2013, a government source told Reuters on Tuesday. The bank's estimate of the electricity cuts' disinflationary effect is about double that of many private analysts.

In the 12 months to mid-January, inflation accelerated to 6.02 percent, up sharply from 5.78 percent one month before and near the top of the central bank's inflation target of 4.5 percent, plus or minus 2 percentage points.

The National Treasury will earmark more than 8 billion reais ($3.92 billion) to ensure the rate reductions, above an initial estimate of 3.3 billion reais, the source added.

Rousseff's expected announcement comes amid concern that reservoirs at hydro-electric dams, which provide two thirds of Brazil's power, are at their lowest level in a decade. A budding energy crisis early this year and speculation that the country had to use more expensive thermal energy had cast doubt on Rousseff's ability to lower energy costs.

FILED UNDER: