Back in early February, I noted that several BRIC countries have an inflation and growth problem. While none are at stagflation levels, we starting to see movements in that area. On that point, some commentators are arguing that the new policy statement from the Bank of Brazil is giving the bank room to possibly raise rates. First, here is the statement from the bank, which was released last week:
Brasília - Assessing the macroeconomic outlook and the inflation
prospects, the Copom unanimously decided to maintain the Selic rate at
7.25 percent, without bias. The Committee will monitor the evolution of
the macroeconomic scenario until its next meeting, in order to define
the next steps in its monetary policy strategy.
The Financial Times notes that some people are interpreting this statement hawkishly:
in the accompanying statement, for the first time since August 2011, it
left open the possibility of an increase to tackle rising inflation.
This represented a sharp turnround from previous statements that rates would remain low for a “prolonged period”, leading economists to predict central bank president Alexandre Tombini could increase them as early as next month.
“To me it was very clear, he is signalling the intention to hike is
there, the decision has already been made,” said Marcelo Salomon,
economist with Barclays Capital.
The reason for the possible change in tone is Brazil's inflatioin projections continue to print at level just above the banks comfort zone
consumer prices ended 2012 near the top of the central bank’s target
range for the third year running, prompting concern from economists that
the country is stuck in a phase of low growth and high inflation.
Brazilian inflation in December was 5.84 per cent against a year
earlier – well above the middle of the central bank’s target zone of 4.5
per cent plus or minus two percentage points – despite economic growth last year that was estimated to have been only about 1 per cent.