Reuters: US Dollar Report: UPDATE 1-Brazil central bank head defends inflation policy stance in Davos

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UPDATE 1-Brazil central bank head defends inflation policy stance in Davos Jan 24th 2013, 12:01 Thu Jan 24, 2013 7:01am EST * Tombini says committed to tackling high inflation * Sees consumer price inflation down to 4.5 pct by year-end * Says Brazil has not abandoned economic policy cornerstones * Central bank had no immediate comment on press reports By Guillermo Parra-Bernal SAO PAULO, Jan 24 (Reuters) - Brazil's central bank is committed to bringing down inflation, its president said, as he defended the government against criticism it had abandoned cornerstones of its economic policy. Policymakers are not ruling out the use of traditional monetary tools to contain rising consumer prices, central bank President Alexandre Tombini told an audience at the World Economic Forum in Davos, Switzerland late on Wednesday. Tombini reiterated the central bank is committed to bringing inflation down to 4.5 percent this year. In the 12 months to mid-January, it accelerated to 6.02 percent from 5.78 percent one month before - putting it near the top of the bank's target range of 4.5 percent plus or minus 2 percentage points. "The central bank remains vigilant and will do what it has to do to handle monetary policy in Brazil. We will control inflation, as has been the case over the past nine years," Tombini said, according to excerpts of a recording of his speech provided by the central bank's press office. Tombini defended President Dilma Rousseff's administration from criticism that policymakers have abandoned the "macroeconomic tripod" that helped usher in stability and growth during the past decade. The tripod is a combination of policies aiming at preserving the nation's floating foreign exchange regime, budget discipline and low inflation. Inflation remains "stubborn" in the short run, he added, and warned that seasonally the first half of the year is "unfavorable" for inflation readings. Yet, the convergence of price data to the bank's target will start during the second half. The central bank signaled on Thursday in the minutes of its last monetary policy meeting that further interest rate cuts are unlikely because they won't solve the causes of the country's economic slump - in what economists saw as a message to the market that inflation remains its top priority. The bank kept rates steady at 7.25 percent on Jan. 16. In the minutes, policymakers said that monetary policy might prove ineffective to fight bottlenecks and shortcomings facing the aggregate supply and are currently dragging down the economy. Confidence in Latin America's largest economy has taken a hit in recent months and many investors ran for the exits after Rousseff put pressure on banks, mobile carriers and power utilities to cut prices, the government used accounting gimmicks to meet its annual budget targets and inflation fell down its list of priorities. Investors have said the government campaign, while well-intentioned, is stirring doubts about Rousseff's willingness to respect contracts and ensure the economy grows in a sustainable way. Tombini told the audience that "markets in the past erred by being over-optimistic about Brazil and may not be erring again by being too pessimistic about the country." Link this Share this Digg this Email Reprints

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