By Luciana Otoni
BRASILIA, March 18 Brazil's central bank should
act to limit the effects of a recent increase in food prices,
central bank chief Alexandre Tombini said on Tuesday, signaling
that policymakers may keep raising interest rates to battle
In a presentation to a Senate committee, Tombini said the
rise in food prices was temporary and should fade over the next
"At first, this seems to be a temporary shock that tends to
be reversed over the next few months. Still, monetary policy
should act to make sure these shocks are limited to the short
term," he said.
A severe drought hitting some of the country's main
agriculture regions had started to increase the value of some
foods, mostly vegetables.
Tombini repeated that the full impact of previous rate hikes
over inflation remained to be seen and that the bank would stay
"especially vigilant" to contain price increases.
The central bank was expected to wrap up its aggressive
monetary tightening cycle soon, after adding 350 basis points to
the benchmark Selic rate since April 2013.
Although inflation remains high, some policymakers fear more
interest rate hikes could hamper an economy that had been stuck
in a rut since 2011.
The bank raised the Selic by 25 basis points to 10.75
percent on Feb. 26, slowing the pace of monetary tightening
after six straight increases of 50 basis points each.
Interest rates are now at the same level they were three
years ago when President Dilma Rousseff took office, a huge
disappointment for a leader who pledged lower borrowing costs
would be one of the lasting legacies of her presidency.
After easing somewhat at the start of the year due a
slowdown in food prices, inflation again rose to 5.68 percent in
February, edging closer to the ceiling of the official target of
Inflation will likely end the year at 6.11 percent in 2014,
according to a weekly central bank poll of analysts.