* Raises inflation forecast to 6 pct in 2013 vs 5.7 pct
* See 2014 inflation at 5.4 pct vs previous view of 5.3 pct
* Price outlook may prompt bank to speed up rate increases
* Cuts view on 2013 GDP growth to 2.7 pct from previous 3.1
* Bank to "use all instruments" to bring inflation down-
By Alonso Soto and Silvio Cascione
BRASILIA/SAO PAULO, June 27 Brazil's central
bank raised its inflation forecasts for 2013 and 2014, signaling
that policymakers could accelerate the pace of interest-rate
increases in coming months to bring down persistent price
In its quarterly inflation report released on Thursday, the
central bank raised its 2013 inflation forecast to 6.0 percent
from 5.7 percent.
That is above the bank's own informal goal for the year to
bring inflation below the 5.84 percent posted in 2012. The new
forecast for 2013 topped private estimates in a weekly central
Central bank director Carlos Hamilton Araujo later told
reporters that the bank will keep working this year to bring
inflation down below 2012 levels and use "all instruments"
available to keep prices under control.
Araujo, director of economic policy, added that the "key
message" in the report was inflation control - a more hawkish
tone in a bank that only two months ago was betting that a
slowing global economy would push down prices at home.
Jankiel Santos, chief economist with Espirito Santo
Investment Bank in Sao Paulo, said, "These numbers tell you that
they should accelerate the pace of rate hikes. But I still have
doubts on whether they will actually do it.
"Given the exchange rate," Santos said, "we could see even
higher inflation ahead."
The central bank surprised investors by stepping up the
pace of tightening with a 50-basis-point rate increase at its
last meeting on May 29. The bank, which meets again on July 10
for a decision on rates, is expected by many in the market to
raise its benchmark Selic rate by 75 basis points to 8.75
However, a sluggish economy has raised the stakes for
central bank chief Alexandre Tombini, who is under pressure to
curb inflation without hurting a fragile recovery.
The bank revised its estimate for economic growth to 2.7
percent this year from a previous forecast that gross domestic
product would grow at an annual rate of 3.1 percent. Despite the
drop, the bank's forecast still looks optimistic to most private
economists, whose median forecast in the bank's weekly survey
estimates GDP growth this year of 2.46 percent.
The widespread nature of price increases has kept inflation
persistently high, the bank said in the report, warning again
that 12-month inflation has an upward trend in the short term
and the outlook for prices is "unfavorable."
"Monetary policy must remain vigilant in order to minimize
risks of high levels of inflation," the bank said, repeating the
same language used in the minutes from its last rate-setting
meeting. The bank added that it expected global inflation to
The central bank calculated that there is a 29 percent
chance of annual inflation ending the year above
the 6.5 percent ceiling of its official target. The
deterioration of inflation expectations is a "relevant risk" for
price dynamics by itself, the bank added.
REAL'S DROP AND 2014 INFLATION
A sharp depreciation of the Brazilian real over the
last month could accelerate inflation further by making imported
goods more expensive. The real is trading at its weakest levels
in four years.
Nonetheless, the bank said in the report that the exchange-
rate pass-through has decreased over the last decade and the
current rate-increase cycle tends to soften the impact of a
weaker real over domestic prices.
Brazil has also called on its peers in the BRICS group -
Russia, China, India and South Africa - to work together to
fight the appreciation of the U.S. dollar abroad.
A freeze of public transportation fares in major cities
following a rash of street protests of the bad quality of public
services could help offset the impact of more expensive imports,
some economists said.
In the report, which included the lower fares, the bank
increased its inflation view for 2014 to 5.4 percent from 5.3
percent previously - well above the center of the official
target of 4.5 percent - plus or minus two percentage points.
The bank, however, acknowledged that a pickup in activity
should increase tax revenue and improve the government's fiscal
results, which remain expansionist or negative for inflation.
President Dilma Rousseff's government has stepped up
spending and offered billions of dollars in tax cuts to revive
an economy that is likely to post a third year of disappointing
growth in 2013. Last year, Brazil's economy grew 0.9 percent.
In the previous decade, the Brazilian economy grew an
average 3.6 percent a year.