Brazilian President-elect promised Dilma Rousseff full "autonomy" for the country's central bank, as Alexandre Tombini appointed to run the institution and bring the highest inflation in 20 months back to destination.
The 46-year-old Tombini may be assisted in this task by the Finance Minister Guido Mantega, who during a press conference yesterday to announce his re-election, said it would cut spending and avoid new expenses. Tombini inauguration Jan. 1 after serving as a board member since 2005. Replaces Henrique Meirelles, 65, the longest running Brazilian central bank chief.
"The choice of Tombini Rousseff reinforces his desire that the Ministry of Finance and the central bank line," said Luciano Rostagno, chief strategist at CM Capital Markets, a Sao Paulo Stock Exchange, with headquarters and futures brokerage. "Inflation is surprisingly high and would require increased expenditure control."
Traders are increasing bets Tombini may have to raise rates at its first monetary policy meeting in January, estimates based on future interest rates, the local contract. Policy makers boosted borrowing costs this year by 200 basis points, or 2 percentage points to 10.75 percent from a record low.
"Dilma wants to reduce the noise between fiscal and monetary authorities, so this is good news," said Zeina Latif, an economist at RBS Securities Inc. in Sao Paulo.
Yields on Brazil's future, long-term rates fell yesterday after Mantega, said it would reduce government spending, reducing pressure on the bank to increase borrowing costs.
Yields on futures contracts maturing interest rate of January 2011, the most traded on the Bolsa de Valores de Sao Paulo, rose five basis points to 10.702 percent today. The real rose 0.02 percent to 1.7213 per dollar from 1.7216 yesterday.
Inflation Target
Consumer prices, measured by the benchmark IPCA-15 gauge rose 5.47 percent in the year to mid-November, the national statistics agency, said this week. The central bank targets inflation of 4.5 percent, plus or minus 2 percentage points.
Rousseff also announced yesterday that Miriam Belchior Paulo Bernardo replaced as Minister of Planning, on 1 January. Belchior currently oversees an investment plan of 293 billion to improve infrastructure.
Mantega Tombini Belchior and Brazilian monetary council will be responsible for establishing the annual inflation target and interest rate term used by the state development bank.
Meirelles said yesterday that "this is the right time to end the mission" and will remain in office until the end of President Luiz Inacio Lula da Silva on 31 December. Tombini is an "excellent choice," said Meirelles.
Tombini Rousseff, said yesterday that he said the central bank has the independence it needs to fight inflation.
"Total" Autonomy
"Dilma told me that in this regime there is no autonomy of the half, but full functional autonomy," said Tombini, which was the group that designed the system of inflation targeting in Brazil.
Responsible for the central bank are appointed and dismissed by the president of the country and are not bound by the terms. Lula appointed Meirelles to replace Arminio Fraga, even before it opened on January 1, 2003.
Meirelles gave Lula cabinet level in 2003, ensuring the head of the bank has a direct channel of communication with the president, a privilege that must be maintained, "said former Central Bank President Carlos Langoni, director of the Getulio Vargas Foundation in Rio Janeiro.
Before joining the central bank in Brasilia, Tombini, born in Porto Alegre in the southern state of Rio Grande do Sul, was the principal advisor to the executive director of Brazil in the International Monetary Fund.
Board Vote
Tombini, who has a doctorate in economics from the University of Illinois at Urbana-Champaign, must be approved by the Senate. He is one of eight people in the central bank's board will vote to establish the rate of interest at the meeting from December 07 to 08. Individual votes are not made public.
"The fact that Mantega Rousseff is to maintain a good indicator for the markets that there will be some continuity, but politics can not be exactly the same," said Claudio Loser, former Western Hemisphere director of the International Monetary Fund, which now runs Centennial Latin American research company based in Washington.
The extra yield investors demand to hold Brazilian debt rather than U.S. Treasuries has fallen to 177 basis points from 1,446 basis points on December 31, 2002, the day before Lula took office, according to JPMorgan Chase & Co. 's EMBI index.
the largest Latin American economy will expand 7.6 percent this year, the fastest pace in more than two decades, according to the median forecast in a central bank survey of about 100 economists.
Rate outlook
Merchants are responsible for the political stakes will have to resume raising interest rates early next year and boost the reference value up to 12.75 percent in late 2011, according to estimates based on future rates.
Some analysts said Mantega past support for increased spending as a possible source of tension with the new central bank chief.
"Tombini is a symbol of responsible money management," said Roberto Padovani, chief strategist at Banco WestLB do Brasil SA. "At the same time, Mantega represents an expansionary fiscal policy."
Along Tombini and Belchior in a press conference yesterday, told reporters Mantega Rousseff reduce spending, to avoid further costs and reduce the amount of capital the Treasury may transfer to the state development bank next year. Rousseff wants Brazil to grow more than 5 percent over the next four years, with no pressure on inflation, said Mantega.
"It looks like we will have more of the same with the economic team," said Jankiel Santos, chief economist at Espirito Santo Investment Bank, in a telephone interview. "The biggest challenge for Tombini will convince the Finance Minister that government spending affects the dynamics of inflation."
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