Brazil’s Monetary Policy Committee (Copom), which is housed in the Central Bank and is Brazil’s equivalent of the US Federal Reserve and sets the country’s key interest rates says it will continue to act cautiously with its monetary policy.
The Copom points out that since September 2004 its decisions in that area now make it very probable that the 4.50% inflation target for the year will be achieved.
According to the minutes from last week’s Copom meeting (when it was decided to reduce the Selic by 0.75 percentage points to 16.25% per year), in spite of uncertainty with regard to petroleum prices, the members decided that "the inflation scenario is generally benign."
The minutes took note of the recent changes in the composition of gasoline in Brazil. Due to problems with the country’s supply of sugarcane-based ethanol, the government reduced the percentage of ethanol added to gasoline from 25% to 20%, incurring price variations that Copom said should even out over the course of the year. In fact, Copom maintained its forecast for a zero increase in fuel prices in 2006.
As for inflation, Copom’s forecast was unchanged: government-controlled prices (fuel, electricity, telephone, education, medicine, public transportation and others) should rise by 4.60% during the year.
That was actually more pessimistic than the latest market estimates (in the weekly Focus survey conducted by the Central Bank) which are for increases of 4.35% in 2006.