Brazil Extending World’s Biggest Rate Rise to Regain Credibility

Brazil’s central bank probably will raise the benchmark interest rate for a sixth straight meeting in an effort to convince investors that policy makers are serious about slowing inflation back to its target.

Policy makers led by central bank President Alexandre Tombini will lift the Selic rate to 10 percent from 9.50 percent today, according to 50 of 52 economists surveyed by Bloomberg. Two analysts expect a 0.25 percentage-point boost. The bank is scheduled to announce its decision after 6:00 p.m. local time.

Before embarking on the world’s biggest interest rate increase this year, policy makers slashed borrowing costs to a record even as consumer price increases exceeded the 4.5 percent goal. The past decisions coupled with higher public spending led investors to speculate the government had abandoned its inflation target, hurting the central bank’s credibility, former bank President Carlos Langoni said. Now, the effort to tame above-target inflation is also being undercut by a weaker currency and a widening budget gap. “The central bank is trying to make up for past mistakes,” Langoni, who is head of the World Economic Center at Fundacao Getulio Vargas, said in an interview at his office in Rio de Janeiro. “Since they lost credibility, they probably have to overshoot the interest rate.”

Analysts forecast Tombini will fail to meet his pledge to slow inflation in 2014 from 2013 as the biggest decline amid major currencies in the past six months reignites price increases. They predict inflation will accelerate to 5.92 percent in 2014 from 5.82 percent this year, according to a central bank survey published Nov. 25.

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