Brazil finance minister says inflation raises concerns -report

RIO DE JANEIRO Fri Feb 15, 2013 7:21am EST

RIO DE JANEIRO Feb 15 (Reuters) - Brazil's Finance Minister Guido Mantega on Friday expressed concern about Brazil's inflation rate, fueling market bets that the central bank could raise interest rates this year.

Mantega, who is in Moscow for a meeting of the G20 group, said that "inflation above the center of (the government's) target raises a yellow flag," according to a report published on the Web site of Valor Economico's website.

"Fortunately, it has been under control for the past few years," he added, arguing that inflation has been pressured by seasonal factors, such as higher food prices, rather than structural reasons.

Brazil targets inflation of 4.5 percent, with a tolerance band of 2 percentage points up or down. In the 12-month period through January, consumer inflation rose to 6.15 percent, the highest reading in a year.

The minister also said the central bank needs to be "vigilant" and will take measures if inflation does not ease "spontaneously," according to Valor.

Mantega said monetary policy, and not the foreign exchange rate, is the right instrument to fight inflation, in a possible attempt to quell speculation that the government would allow the real to strengthen to cheapen the cost of imported goods.

His comments drove interest rate futures sharply higher as investors increased bets the central bank could soon lift the Selic rate from its current all-time low of 7.25 percent.

The contract maturing January 2014 soared 18 basis points to 7.57 percent.

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