Brazil Says Credit Measures May Precede Conventional Action to Slow Growth

Bloomberg | By Iuri Dantas and Matthew Bristow | Dec 16, 2010 6:29 AM CT
Brazil’s decision this month to raise banks’ reserve requirements to slow credit growth may “precede” conventional monetary policy action, the central bank said.
The central bank, in the minutes of the Dec. 7-8 meeting, said the “macro prudential” measures are a “fast and powerful” tool to contain localized demand pressures and will have an impact on prices that jumped by the most in five years last month. Policy makers said they must remain “especially vigilant” to prevent short-term inflationary pressures, pushed by higher food prices, from extending over time.
Policy makers voted unanimously to keep the Selic rate at 10.75 percent for a third straight meeting last week, matching the forecast of 48 of 51 analysts surveyed by Bloomberg. Three economists forecast at least a quarter-point increase.
The minutes show that the central bank is likely to raise borrowing costs 50 basis points at its Jan. 18-19 meeting to 11.25 percent, said Marcelo Carvalho, head of Latin American research at Banco BNP Paribas Brasil in Sao Paulo. The meeting will be chaired by Alexandre Tombini, who the Senate confirmed yesterday as President-elect Dilma Rousseff’s choice to succeed Henrique Meirelles as bank president.
“They are paving the way for upcoming hikes,” said Carvalho in a phone interview. “The timing is left open, but all the conditions are set for Tombini to hike in January.”
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