* Central bank chief, finance minister signal rate rise
* Yields on rate futures jump after their comments
* Tombini says bank to "closely monitor" indicators
* Gov't may make unpopular moves to tame prices - Mantega
By Bruno Federowski and Walter Brandimarte
SAO PAULO/RIO DE JANEIRO, April 12 Brazil's top
two economic policymakers warned on Friday that high inflation
will not be tolerated, bolstering speculation the central bank
could raise interest rates as early as next week.
Central bank chief Alexandre Tombini and Finance Minister
Guido Mantega said at separate events the government will not
tolerate high inflation. Mantega specifically stated that
interest rates could move up.
Both officials, sometimes considered to be at odds over how
to tackle inflation, shared the same tough language against a
surge in prices that threatens the sluggish economy and
President Dilma Rousseff's re-election prospects next year.
"There is and there will be no tolerance of inflation. We
are closely monitoring all indicators at this moment and will
make decisions in the future about the best course for monetary
policy," Tombini told reporters in Rio de Janeiro when asked
about market expectations there would be a rate increase next
His comments were rare because the bank's board members are
usually silent before making monetary policy decisions. One is
scheduled for Wednesday.
Short-dated interest rate futures, which were already rising
following earlier comments by Mantega, moved even higher after
Tombini's remarks, as investors bet Brazil's benchmark Selic
rate was going up.
Some analysts noted that, for the first time in a long time,
Tombini said he was "closely" monitoring all indicators to
decide the next steps, which could be a hint an interest rate
rise was imminent.
"In all his previous statements, Tombini had not used that
word," said Luciano Rostagno, chief strategist at WestLB bank in
He added that, in the past, the same expression was used to
signal imminent action.
"He knows markets will interpret this word as an indication
that interest rates will rise immediately," Rostagno added.
The central bank is under growing pressure to raise rates
from the current record lows of 7.25 percent after inflation
broke through the top end of the official target in March and
curbed consumer spending in February.
NO POLITICAL AGENDA
Earlier in the day, Mantega told a group of businessmen the
central bank could raise interest rates if need be and that
there was no political agenda to block such a move.
"We will not hesitate to take measures, even measures that
are considered less popular, like for example those related to
interest rates," he said.
Combined, Mantega's and Tombini's comments caused yields on
interest rate futures contracts due in January 2014 to
surge 19 basis points to 8.11 percent.
"The policy message in Brazil has been quite mixed over the
last year. It's very curious that both Mantega and Tombini seem
to be on the same page and I believe that has a purpose, which
is to get the public ready for a rate hike," said Enrique
Alvarez, head of research for Latin America at IDEAglobal.
While traders are betting on an imminent rate increase, most
analysts until recently expected the central bank to be cautious
and keep the Selic stable for now while it waits for more
A number of those analysts changed their forecasts after
Tombini's comments on Friday, betting for a rate increase next