UPDATE 1-Brazil won't slow growth to fight inflation -president

Wed Mar 27, 2013 1:09pm EDT

Related Topics

* Rousseff says inflation is a result of supply shocks

* Comments cause interest rate futures to sell off

* Investors see lower chances of imminent interest rate hike

March 27 (Reuters) - Brazil's President Dilma Rousseff on Wednesday said she will not support policies that attempt to curb inflation by lowering economic growth, pouring cold water on market expectations that the central bank was ready to tighten monetary policy.

"I don't agree to policies to fight inflation that look into reducing economic growth," Rousseff said in comments to reporters in South Africa, where she is attending a meeting of BRICS countries, broadcast by Brazilian government TV.

"Last year we had low economic growth, but inflation rose because we had a supply shock," she added, repeating one of the arguments recently used by the central bank to justify keeping Brazil's base Selic rate at an all-time low of 7.25 percent even as inflation neared the ceiling of a government target.

"There is nothing we can do internally apart from expanding our production to contain an increase in commodities prices caused by a decline in the U.S. (grain) harvest," Rousseff said.

Interest-rate futures sold off at Brazil's BM&FBovespa on Rousseff's comments, which were interpreted as a sign that the central bank is in no rush to raise interest rates.

Contracts maturing in Jan. 2014 fell 5 basis points to 7.74 percent, while those maturing in Jan. 2015 dropped 7 basis points to 8.45 percent.

Those contracts had been little changed in the past few days as investors awaited a key central bank inflation report on Thursday to reassess their bets on the base Selic rate.

"Any comments from the central bank will have less weight now that you have the perception that the one in charge of economic policy is the Planalto," said Silvio Campos Neto, an economist with Tendencias consultancy, referring to the presidential palace.

Rousseff said Brazil has moved beyond policies that try to curb prices by lowering economic growth, but assured that the government is closely monitoring inflation.

"We don't believe inflation is out of control. On the contrary, we believe it is under control that what is happening are temporary fluctuations," she said.

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