Reuters: US Dollar Report: UPDATE 1-Tombini sees Brazil inflation easing despite rebound

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UPDATE 1-Tombini sees Brazil inflation easing despite rebound Dec 11th 2012, 15:47 Tue Dec 11, 2012 10:47am EST * Central bank chief cites five reasons inflation will fall * Tombini sees "managed exchange-rate" policy slowing price increases * Economists, however, forecast elevated inflation this year and next BRASILIA, Dec 11 (Reuters) - Inflation in Brazil will slow in 2013 and converge toward the center of a government target range even as the economy gains steam, central bank president Alexandre Tombini said on Tuesday, reinforcing the outlook for stable interest rates. The central bank's outlook contrasts with most economists, who forecast elevated inflation this year and next as the government increases stimulus to shake the economy out of a nearly two-year slump. Tombini outlined five reasons why he expected inflation to slow next year, beginning with a smaller increase in the minimum wage and the more moderate raises already negotiated with public servants, in remarks to a congressional hearing in Brasilia. He also cited the central bank's role in managing the exchange rate as one reason that inflation should moderate. "Our floating exchange rate should not be seen as an incentive for bets that exacerbate its volatility," he said. Brazil's currency, the real, has slipped about 10 percent since the beginning of the year after interventions by the central bank and a sharp cut in Brazil's base interest rate. But when the real weakened sharply to nearly 2.14 per dollar following weak economic data in recent weeks, the central bank stepped in to halt its slide. The currency was little changed in Tuesday trading, gaining 0.1 percent to 2.0735 per dollar. Earlier in the day, central bank board member Carlos Hamilton Araujo said at an event in Sao Paulo that Brazil's exchange rate is a "dirty float." Finance Minister Guido Mantega has used the term to describe a floating exchange rate with occasional government interventions. Speaking at the same event, Treasury Secretary Arno Augustin said the exchange rate has already achieved a more "realistic" level to support domestic industry. Tombini also told senators in Brasilia that government efforts to reduce production costs, moderating credit growth and a fragile global economy would contribute to slower inflation next year. A central bank survey of about 100 financial institutions on Monday showed a median forecast of 5.58 percent inflation this year and 5.40 percent next year. The central bank targets inflation of 4.5 percent per year, plus or minus 2 percentage points. Economists expect Brazil's benchmark interest rate to remain at 7.25 percent through the end of next year, according to the median forecast in the survey. Link this Share this Digg this Email Reprints

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