Finance news

Brazilian central bank President Henrique Meirelles said policy makers are on the lookout for increases in consumer prices and are ready to raise interest rates further if their inflation target is threatened.

“The central bank is alert and ready to act,'' Meirelles, 62, said today in a Bloomberg Television interview in Sao Paulo.

Meirelles said he sees the need to cool consumer spending in Brazil after the annual inflation rate climbed to 5.58 percent in May, the fastest since January 2006, fueled by rising food costs. Policy makers raised the so-called Selic rate twice this year to 12.25 percent, saying an expanding economy may stoke more inflation.

Brazilian stocks fell for the first time in three days, led by banks and retailers, after Meirelles highlighted the threat of inflation. The Bovespa index of most-traded shares on the Sao Paulo exchange slid 949.17, or 1.4 percent, to 67,488.33 at 10:41 a.m. New York time.

Brazil's currency extended losses and was down 0.5 percent to 1.6157 per dollar. Meirelles said he's “concerned'' the real's appreciation will hurt the nation's competitiveness. The real has gained 11 percent this year against the dollar, the biggest advance among the 16 most-traded currencies.

The central bank ended two straight years of rate cuts last October as faster economic growth coupled with rising food prices started to fuel inflation. Brazil's economy grew 5.8 percent in the first quarter of this year after a 6.2 percent gain in the last quarter of 2007, the fastest pace in more than three years.

`As Long as Necessary'

“We took action, and basically we are saying that if it is necessary we will take action for as long as it is necessary,'' Meirelles said bad credit payday loans. “There's no doubt the moment requires attention and also action.''

The bank targets inflation of 4.5 percent, plus or minus two percentage points.

The eight-member board led by Meirelles will probably deliver a third half-a-percentage-point increase next month to cool demand and rein in inflation. Analysts covering the Brazilian economy expect the bank to increase the interest rate to 12.75 percent from 12.25 percent, according to a central bank survey of economists.

“Interest rate increases start to have an effect immediately,'' Meirelles said, adding the full effects of the increases will be felt at the end of this year or early in 2009.

Meirelles, a former FleetBoston Financial Corp. executive, is the only economic cabinet member to have stayed on the job since President Luiz Inacio Lula da Silva took office in 2003. Since then, Lula, 62, has replaced the Finance, the Budget, and the Foreign Trade ministers at least once.

Lula

The Brazilian central bank isn't independent by law and the president has authority to fire the central bank president.

“The head of Brazil's central bank hasn't changed because he is doing his job,'' Alexandre Lintz, chief-strategist with BNP Paribas in Sao Paulo, said in a telephone interview. “He has delivered low inflation rates and that's why he has so much support from Lula.''

Lula said on June 16 fighting inflation is a “priority.''

The real is up 120 percent against the U.S. dollar since January 2003 as exports almost tripled in the same period on higher commodity prices.

Source