Brazil Central Bank May Signal More Rate Increases: Week Ahead

By Adriana Brasileiro and Heloiza Canassa
June 23 (Bloomberg) -- Brazil's central bank may raise its inflation forecasts and signal additional interest rate increases as prices rise faster than projected.
The bank's quarterly inflation report scheduled for release June 25 may shed light on its intentions. A June 11 report showed that consumer prices climbed 5.58 percent in the 12 months to May, the fastest pace since January 2006 and more than the 4.5 percent goal for the fifth straight month.
Central bank President Henrique Meirelles said last week he's ``ready to act'' to counter inflation stoked by rising food costs and an expanding economy. Policy makers raised the benchmark rate by a half percentage point to 12.25 percent on June 4, the second increase this year.
``The central bank may raise its inflation forecast in the report, considering the last price indexes we saw,'' said Jankiel Santos, economist at Banco Espirito Santo de Investimento SA in Sao Paulo.
The central bank may accelerate the pace of interest rate increases starting next month, Barclays Capital economists said in a June 18 research note. Barclays predicts two increases of three-quarters of a point by the end of September. Previously they forecast half-point increases.
The Barclays view differs from that of most economists, who expect a half-point increase in the July 22-23 rate meeting to 12.75 percent, according to a central bank survey of about 100 analysts published June 16.
The central bank will raise the benchmark rate to 14.25 percent by year-end, before bringing it down to 12.75 percent by the end of 2009, according to the survey, which was taken June 13.
Warning
The central bank's inflation report may paint a darker picture for this year and next to warn about the need for more rate increases, said Joel Bogdanski, a senior economist at Banco Itau SA in TK.
``They will add actual numbers to the words in the minutes, and will use the report to send out a message to the market about monetary policy,'' Bogdanski said.
Brazilian annual inflation as measured by the benchmark IPCA jumped 0.79 percent last month, more than any of the 36 economists surveyed by Bloomberg expected. It was the biggest monthly jump in prices since April 2005.
``Market players are waiting to see how the central bank interpreted the surge in inflation,'' said Zeina Latif, senior Brazil economist with ABN Amro Bank NV in Sao Paulo. ``The central bank tends to show it's more concerned in these reports, eventually pointing to a longer interest rate tightening process.''
Markets Last Week
Last week, the real gained 1.9 percent to 1.6057 per dollar, from 1.6355 per dollar the previous week. The yield on the government's zero-coupon bond due January 2010 was little changed at 14.91 percent, according to Banco Bradesco SA.
The benchmark Bovespa index fell 2,586.73 points, or 3.9 percent, to 64,613 points along the week. Vivo Participacoes SA, Brazil's largest mobile-phone operator, gained 6.6 percent, while JBS SA, the world's biggest beef producer, rose 5.5 percent.
Cia. Vale do Rio Doce, the world's largest iron-ore producer, said it wants to expand into other metal markets and is considering possible acquisitions to expand.
The mining company, which plans to invest $59 billion through 2012 to expand output, said June 10 it plans to sell as much as $15 billion in shares to finance expansion and possible acquisitions.
Vale's ``BBB'' rating, the second-lowest for investment- grade securities, may be raised one level to ``BBB+'' by Standard & Poor's Inc. if the share sale goes through, the agency said last week.
The following is list of events in Brazil this week:

Event Date
Central bank survey 23
Current account report 23
Weekly trade balance 23
Total outstanding loans 24
IPCA-15 inflation 25
Unemployment data 26
IGP-M inflation 27