UPDATE 2-Brazil vows to keep inflation under control -finance minister

Tue Feb 26, 2013 11:53am EST

By Luciana Lopez and Daniel Bases

NEW YORK Feb 26 (Reuters) - Brazilian Finance Minister Guido Mantega on Tuesday expressed confidence that the country's pace of inflation will remain within targets in full-year 2013, and he promoted the government's efforts to spur infrastructure investments to help lift a flagging economy.

"We have met and exceeded our inflation goals for last year and the same is in store for 2013," Mantega told investors in New York.

Brazil's central bank targets inflation at 4.5 percent, plus or minus 2 percentage points. While 12-month inflation has stayed just below the top of that range, the bank has struggled to bring the rate closer to 4.5 percent.

The government of President Dilma Rousseff is seeking up to $235 billion in infrastructure investments.

Mantega said he expects investors to get 10 percent or more per year return on their money from infrastructure projects running the gamut of oil and gas to electricity and transportation.

The economy has slowed from a breakneck pace, putting at risk the hard-fought advances in lifting the per capita income levels of Latin America's biggest country toward developed economy status.

Brazil's 2012 fourth-quarter gross domestic product is expected to have risen 1.6 percent year-on-year, which would make it the strongest period of last year. Such growth, however, wouldn't come close to matching the 7.5 percent rate of 2010 or the 2.7 percent rate of 2011.

Mantega noted that the rapid development had brought about volatile exchange rates and forced the government to implement capital controls such the financial transactions tax (IOF) on various assets.

While some of those taxes, which slowed the flow of speculative cash coming into Brazil, have been removed, he said there are no plans to eliminate all of them.

When asked if the government was considering removing the IOF on fixed income for non-residents, Mantega replied: "No, not for fixed income."

Brazil's currency, the real, lost nearly 10 percent against the U.S. dollar last year, but since the start of 2013 it has regained a little over 3 percent of its value, an added weapon that is helping the government keep inflation from breaching the central bank's target.

"Today we have a foreign exchange rate stabilized at a more realistic level and with low volatility," Mantega said.

Economists still expect 2013 inflation to clock in at 5.69 percent, according to the latest central bank survey.

Brazilians have long memories of runaway prices in previous decades, and the government has been careful to reassure voters that price increases will not repeat that performance now.

"Controlling inflation is a priority," Mantega said.