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Brazilian Central Bank President Henrique Meirelles, after deciding yesterday to stay in his job and drop a bid for office, said he is “totally dedicated” to slowing inflation in his final nine months atop the bank.
Meirelles, the country’s longest serving monetary chief, said he made the “difficult decision” to give up offers to run for the Senate and Governor of his home state of Goias after talking with President Luiz Inacio Lula da Silva, who had been urging him to stay. The decision ends nine months of speculation on whether he would step down by an April 3 deadline to become eligible to run in October’s elections.
“Ending my term is the most effective way to assure that rational, responsible economic policy prevails for years to come,” Meirelles, 64, told reporters in Brasilia.
After slashing Brazil’s benchmark interest rate to a record low of 8.75 percent in July 2009, Meirelles is likely to raise the Selic rate in April in a bid to rein in prices, according to economists surveyed by the central bank. Inflation is running above the central bank’s 4.5 percent target, and the bank said March 31 that consumer prices will increase 5.2 percent in 2010 and 4.9 percent in 2011, compared with 4.3 percent in 2009.
“Meirelles’ decision will be taken as a positive move because it removes uncertainty and brings stability back to the market,” Diego Donadio, an economist with BNP Paribas in Sao Paulo, said in a phone interview. “We expect an appreciation of the currency and an increase in the long part of the yield curve” when markets open April 5 after the Easter holiday.
Meirelles said yesterday the central bank “won’t accept” inflation outside the target. He said that inflation may slow to the 4.5 percent midpoint as early as this year.
Electoral Ambitions
Meirelles’ electoral ambitions, confirmed on Sept. 30 when he joined the Brazilian Democratic Movement Party, raised concern that monetary policy could be tainted by political motivations.
The March 17 decision to keep the benchmark interest rate at a record low for a fifth straight meeting amid quickening inflation surprised 30 out 57 analysts surveyed by Bloomberg.
The central bank’s inflation forecast for this year is “markedly” above the 4.5 percent target, according to the minutes of the March 17 meeting published last week. Three of the eight board members, in the biggest split vote in 14 months, voted to increase the rate to 9.25 percent.
Alexandre Schwartsman, chief economist at Banco Santander SA in Sao Paulo and a former central bank board member, wrote in a March 25 report that he had “difficulties” understanding why the majority of the monetary committee decided to wait until April to start raising rates.
While no longer eligible to run for office, Meirelles said he may advise Lula’s chosen heir, former Cabinet Chief Dilma Rousseff, on economic policy. He’s also eligible to serve as finance minister if she defeats her main rival, former Sao Paulo state governor Jose Serra. Meirelles said he received “many calls” to serve as Rousseff’s running mate though never discussed leaving the bank with the candidate.
Policy Outlook, Past
Policy makers will need to push the benchmark interest rate to 9.5 percent next month in a bid to slow economic expansion and rein in consumer prices, Ilan Goldfajn, chief economist for Itau Unibanco Holding SA, said in a phone interview March 29.
Meirelles’ appointment as central bank president in 2002, after he won a seat in congress for the opposition Social Democratic Party, signaled Lula would abandon the positions he espoused as a labor activist and discard earlier threats to default on Brazil’s public debt.
During his first policy meeting in 2003, he surprised investors by raising the benchmark rate to 25.5 percent. It was the first sign the incoming Lula administration would fight inflation and resist calls from the socialist Workers’ Party, founded by Lula, to stoke growth with looser lending.
Legacy
The strategy paid off. Brazil, which defaulted on its foreign debt twice in the last 25 years and devalued the currency in 1999, received its first investment-grade rating from Standard & Poor’s on April 30, 2008.
The $1.6 trillion economy may grow by 6.4 percent this year, the fastest pace in more than two decades, according to Paulo Leme, chief Latin America economist at Goldman Sachs Group Inc.
The stock market has soared 10-fold percent in dollar terms since Lula took office in January 2003, the third best performing index after Kazakhstan and Peru.
“In economic terms, there is reason to almost canonize Meirelles,” Thomas Trebat, executive director of the Center for Brazilian Studies at Columbia University and a former Citigroup Inc. analyst, said in a March 17 telephone interview.
By: Andre Soliani and Maria Luiza Rabello
Source: Bloomberg |
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