* Central bank chief reiterates it's ready to raise rates
* Tombini under pressure to raise rates to curb inflation
By Alonso Soto
PORTO ALEGRE, Brazil, April 8 Brazil's central
bank will monitor the evolution of the economy before it decides
whether it needs to raise interest rates to battle inflation,
the bank's chief, Alexandre Tombini, said on Monday, striking
the same cautious tone of recent weeks.
Tombini repeated that naggingly high inflation is a concern
for policymakers but that "lingering uncertainties" have made
the central bank careful about raising interest rates. That
message was interpreted again as an indication that interest
rates will remain unchanged when the bank's monetary policy
committee meets on April 17 to avoid slowing an already timid
"Actions were taken but it is plausible to say that others
may be necessary. To decide this, the central bank will monitor
the evolution of the macroeconomic scenario," Tombini said at a
university conference in the southern city of Porto Alegre.
Tombini is under growing pressure to raise the Selic rate
to battle inflation that likely pierced the official target
ceiling of 6.5 percent in March.
The market is betting the central bank will again refrain
from tightening monetary policy this time around to keep rates
at a level that further stimulates the recovery in Latin
America's largest economy.
"Tombini will not raise rates now," said Andre Perfeito,
chief economist with Gradual Investimentos in Sao Paulo.
"Economic activity remains weak, the local stock market
continues to fall and you have a big trade deficit that could
further strengthen the real. I don't see interest rates
resolving all of those issues any time soon."
The yields of Brazilian interest rate futures are
indicating a 55 percent chance of the bank keeping the Selic
rate steady at 7.25 percent at its next meeting, and a 45
percent chance of it raising the rate to 7.50 percent, according
to Thomson Reuters data.
Tombini again stressed that the bank has changed the course
of monetary policy by openly saying it is worried with inflation
levels. He added that the bank's exclusive focus is to maintain
Annual inflation in the month to mid-March climbed to 6.43
percent, close to the 6.5 percent ceiling of the official target
range. Inflation probably breached that target for the first
time in over a year, according to a Thomson Reuters survey of
Prices keep climbing in Brazil while the economy remains
sluggish despite an avalanche of stimulus measures implemented
by the government of President Dilma Rousseff.
For more than a year the Rousseff administration has cut
interest rates, granted tax breaks, opened up infrastructure
concessions to private entrepreneurs and granted billions of
dollars in cheap loans to help local businesses.
However, the recovery remains uneven, with domestic demand
still strong but private investment remaining anemic. This has
been the main drag on an economy that slowed sharply to 0.9
percent growth in GDP last year from red-hot expansion of 7.5
percent in 2010.