Brazil's Central Bank Raises Inflation Forecast

Brazil's central bank sees 2008 inflation rising above its annual target of 4.5 percent, increasing speculation the monetary policy board may raise interest rates in the months ahead in an attempt to contain prices. Policy makers increased their inflation forecast for this year to 4.6 percent from 4.3 percent today. The bank also increased this year's growth forecast to 4.8 percent from 4.5 percent.

The bank's policy makers this month considered raising interest rates to stem inflation for the first time since ending two years of cuts in October, the minutes of their March 4-5 meeting showed, but they chose to keep the rate unchanged at a record-low 11.25 percent.

The yield on the overnight interest-rate futures contract for January delivery rose 2.5 basis points, or 0.025 percentage point, to 12.260 percent at 10:56 a.m. New York time That's more than 1 percentage point above the bank's target overnight rate of 11.25 percent, signaling investors are betting that policy makers will boost the rate this year. The yield on the January contract has risen 50 basis points this month.


Brazil's annual inflation rate, as measured by the benchmark IPCA index, climbed to 4.61 percent in February from an eight-year record low of 2.96 percent in March 2007.

The central bank targets inflation of 4.5 percent, plus or minus 2 percentage points to accommodate price shocks.

Separately, the national statistics agency said today that unemployment had risen to 8.7 percent in February, from 8 percent in January. The jobless rate was down from the 9.9 percent registered in January 2007.