* Central bank director says price convergence "unrealistic"
* Finance minister says inflation to end 2013 at about 5.5
* Both see local currency more stable this year
By Alonso Soto and Luciana Otoni
BRASILIA, Feb 21 The Brazilian government
expects inflation to remain above the center of the official
target range in 2013, reaffirming expectations that policymakers
could lift interest rates from record lows later this year.
Central bank director Carlos Hamilton Araujo said on Tuesday
that expectations that consumer prices would converge to the
center of the target are "unrealistic," signaling the bank could
revise its 2013 inflation estimate of 4.8 percent. The official
target range is 4.5 percent plus or minus two percentage points.
Finance Minister Guido Mantega later highlighted market
projections that the IPCA consumer price index should rise 5.5
percent in 2013 and reiterated that the government expects
inflation to end the year below the 5.84 percent rate posted in
"The inflation situation is under control," Mantega said on
a conference call with reporters and analysts.
The government of President Dilma Rousseff has signaled it
is more concerned with rising prices this year even as the
economy continues to disappoint with a slower-than-expected
That has put the central bank in a difficult spot as its
tries to stimulate the economy with record-low rates at the same
time it struggles to tame rising inflation expectations.
Brazil's inflation accelerated at the fastest monthly rate
in nearly eight years in January, edging dangerously close to
the ceiling of the target and raising alarm bells in a country
that was scarred by hyperinflation in the 1980s and 1990s.
Central bank chief Alexandre Tombini has warned that the
bank is ready to lift interest rates to control inflation even
if the economy falters. However, he also hinted that any future
rate hikes will be mild and could take time.
The bank ended its monetary easing cycle in October after
trimming its Selic rate by 525 basis points to a record low of
7.25 percent in a bid to revive a struggling economy.
Yields on interest rate future contracts in Brazil
fell on Thursday due to a gloomier global economic outlook, but
still price in a rate hike as soon as April. Yields on the
future contract due in Jan. 2014 fell to 7.67 percent on
Thursday, compared with 7.69 percent at Wednesday's close.
Both Mantega and Araujo agreed that inflationary pressures
are easing and expect trailing 12-month inflation to cool down
later this year.
They also agree that a more stable exchange rate will not
add inflationary pressures this year. A steep depreciation of
the real pushed inflation higher in 2012.
Mantega said he saw no need to take more action in the
currency exchange market as the real has stabilized in recent
Senior officials told Reuters that higher inflation could be
more difficult to battle this year and next as the economy
picks up steam following a raft of government stimulus measures.
Rousseff also plans to run for re-election next year, and is
likely to increase government spending in the runup to the vote.