Brazil Central Bank Raises 2002 Inflation Forecast To 4.4%
08:58 GMT-05:00 Wednesday, March 27, 2002
SAO PAULO -(Dow Jones)- The Central Bank of Brazil on Wednesday said it significantly raised its inflation forecasts for 2002 and 2003, suggesting there's little room for further cuts in interest rates in coming months.
In its quarterly inflation report, the monetary authority said its new projection for the 2002 consumer price index is a 4.4% rise, up from 3.7% in the December report. The 2003 forecast is now 2.8%, compared with a previous estimate of 2.5%.
The projections are based on a constant interest rate of 18.5%. The monetary authority cut rates by 25 basis points twice this year, at the February and March policy meetings.
The central bank said the main reason leading to the higher inflation projections is rising fuel prices, noting that there are no signs yet that demand could pressure inflation even as Brazil gradually recovers from a sharp slowdown in 2001.
The new 2002 inflation forecast is very close to the upper end of the central bank's own CPI target band of 4%-4.5% to guide monetary policy this year. The government's 2002 inflation goal is 3.5%, with a two-percentage-point leeway on either side, or 1.5% to 5.5%.
Analysts say Brazilians will likely lose credibility in the country's three- year-old inflation targeting regime if the central bank fails to keep the CPI rate within the government's 1.5%-5.5% target band this year after 2001's failure. Last year, consumer prices rose 7.7% on average, exceeding the upper end of the government's target band of 2%-6%.
The monetary authority has been saying, however, that the supply shocks that hit Brazil's economy in 2001 were so great it should try and make the CPI converge to the government's target over the course of 18 to 24 months. The 2003 inflation goal is 3.25%.
Brazil faced an energy crisis and spillover from Argentina's financial woes last year, in addition to fears of global recession and post-Sept. 11 market jitters.
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