Reuters: US Dollar Report: UPDATE 1-Brazil central bank ups 2012 inflation view, cuts 2013

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UPDATE 1-Brazil central bank ups 2012 inflation view, cuts 2013 Sep 27th 2012, 12:27 Thu Sep 27, 2012 8:27am EDT * Bank also chops 2012 GDP forecast to 1.6 pct from 2.5 pct * Bank strikes more cautious tone on short-term inflation * Revision of inflation view could spell end of easing cycle BRASILIA, Sept 27 (Reuters) - The Brazilian central bank raised its inflation forecast for 2012, reinforcing arguments that policymakers would likely end their year-long monetary easing cycle and hold the benchmark interest rate steady in October as price pressures fail to subside. In its latest quarterly inflation report, released on Thursday, the bank raised its 2012 inflation forecast to 5.2 percent from 4.7 percent seen three months ago. But it lowered its estimate for 2013 inflation to 4.9 percent from 5.0 percent previously, citing lower energy costs after the government announced plans to slash electricity rates. With some price pressures contained next year, the report signaled interest rates could stay near record lows for some time. Its projection for economic growth for 2012 was revised sharply down to 1.6 percent from 2.5 percent, its second straight downward revision in what shows that policymakers overestimated the pace of recovery in the world's No. 6 economy. For more than a year the government of President Dilma Rousseff has struggled to revive a sluggish economy. The central bank has slashed 500 basis points off its benchmark Selic interest rate, and the government delivered a flurry of tax breaks and subsidized credit. All that stimulus is starting to support the economy, but may also stoke inflation that has accelerated on the back of a surge in global and domestic food prices. The central bank said it "contemplates relatively benign dynamics for food prices in the medium term, although price volatility of raw products and grain constitutes a risk factor" The recent pick up in consumer prices could spell the end of the central bank aggressive rate-cutting cycle at its next meeting on Oct. 10. The Selic rate stands at a record low of 7.5 percent. For more than two months now the annual inflation rate has moved upwards and further away from the center of the official target range of 4.5 percent -- plus or minus two percentage points. A rise in food prices pushed inflation up to 5.24 percent in August, reverting a downward trend that took inflation to a near two-year low of 4.92 percent in June. Link this Share this Digg this Email Reprints

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