UPDATE 3-Brazil's Oct industrial output slumps in crisis

Tue Dec 2, 2008 12:39pm EST
(Adds comment from finance minister)
By Ana Nicolaci da Costa
BRASILIA, Dec 2 (Reuters) - Industrial production in Brazil recorded its biggest fall in nearly a year in October, raising pressure on the country's central bank to cut interest rates to maintain growth in Latin America's largest economy.
In the latest sign that the fallout from the global financial crisis has spilled into the real economy, government statistics agency IBGE said on Tuesday industrial output contracted 1.7 percent month-on-month in October, its worst showing since November 2007.
Output fell by more than the 0.3 percent drop expected in a Reuters poll of 15 analysts and came at the bottom end of expectations, with forecasts ranging between a 1.7 percent decline and a 0.5 percent increase.
"The contamination from the crisis was very rapid because it affected credit and it was credit that was inflating the economy," said Zeina Latif, an economist at ING in Sao Paulo.
With the economy slowing, analysts revised down their forecasts for growth next year to 2.8 percent from 3 percent last week, according to the latest central bank survey.
Asked if the economy could grow less than 3 percent in 2009, Finance Minister Guido Mantega said: "I don't think so."
"From October, we had problems, the international financial crisis reduced credit, it's natural that in October, November and December there be a slowing of the Brazilian economy," he told reporters in Brasilia.
The government expects 4 percent growth next year.
With auto sales plunging, bank lending contracting and industry confidence at its lowest level in more than three years, pressure is mounting on Brazil's central bank to join others in cutting rates to avoid a global recession.
The bank's monetary policy committee voted unanimously in October to keep its main lending rate at a two-year high of 13.75 percent, changing tack after four straight rate hikes. Its next meeting is next Tuesday and Wednesday.
Signs that inflation is easing could increase pressure on the bank to cut rates. The FIPE research institute said on Tuesday consumer prices in Brazil's largest city, Sao Paulo, rose 0.39 percent in November, below expectations for a 0.5 percent increase.
The FIPE index is closely watched by economists for trends in Brazil's benchmark IPCA inflation index, which is used by the central bank as a guide when setting rates.
But Brazil's benchmark IPCA consumer price index rose 6.41 percent on an annual basis in October and the latest central bank survey shows analysts revised up their forecasts for inflation next year to 5.25 percent from 5.20 previously.
Those numbers are above the government's 4.5 percent inflation target and at the top end of its 2 percentage point tolerance range.