Tombini Meirelles is not like betting Fraga or increase in their rate-Fade

Operators are approaching Alexandre Tombini bets will be the first president of Central Bank of Brazil in more than a decade to keep the benchmark interest rate unchanged at its policy meeting first.

returns on future interest rates show traders reduced bets for an increase in the key rate by half since December 8-25 basis points, or 0.25 percentage point yesterday. Gustavo Franco was the last president of the central bank to keep borrowing costs unchanged at its first meeting in 1997.

Tombini can maintain the steady pace after a slower than expected increase in retail sales in October marked the expansion of Latin America's largest economy is declining. The slowdown in food price increases are fueling speculation the inflation rate will decrease from 5.63 percent, the highest since February 2009. Current central bank chief Henrique Meirelles raised rates at its first meeting in 2003, while Arminio Fraga boosted borrowing costs when he became bank president in 1999.

"Inflation could ease in the back of the drop in food prices and from this perspective, we can not ignore the possibility that the central bank might buy some time here," Zeina Latif, an economist at RBS Securities Inc. in Sao Paulo, said in a telephone interview. "The markets are divided between zero and 50 basis points."

Speculation that China will raise borrowing costs also vanishes, yielding bonds showing the central bank will seek to damp inflation by raising bank reserve requirements rather than interest rates.

"Not appropriate"

Meirelles, who increased reserve requirements and capital for banks on December 3, held the main interest rate at 10.75 percent at its last meeting earlier this month. board of eight members of the central bank said in a statement, said it was "not appropriate to re-evaluate the monetary policy strategy" because "more time is needed to measure the economic impact of recent measures to curb credit growth .

The Central Bank published the minutes of the meeting today.

"The announcement was not so clear after the policy meeting," said Bertrand Delgado, an economist at Roubini Global Economics LLC in New York that the forecasts of an increase of 50 basis points in January, in a telephone interview. "But you get the feeling, based on the data, which could raise rates in January or wait a little longer. So far, the data show that could wait a little longer."

Policy makers raised the rate this year at 200 basis points to cool the economy. Analysts expect growth of 7.6 percent this year, the fastest pace in more than two decades, according to a survey of 10 December the central bank of about 100 economists.

Retail sales

Retail sales rose 0.4 percent in October from September, less than the forecast of 1.1 percent on average by 25 economists surveyed by us, the national statistics agency on 14 December. The price index IGP-M, broader indicator of the nation's inflation, rose 0.83 percent in the first advance in December, less than the median estimate of 0.95 percent. Increases in the prices of agricultural products fell to 1.4 percent, according to the index.

The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries rose 2 basis points to 177 at 9:30 am New York, according to JPMorgan Chase & Co.

The cost of protecting Brazil's bonds against default for five years has changed little in 116, according to CMA prices. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

The real rose 0.4 percent to 1.7034 per U.S. dollar today, from 1.7095 yesterday.

Inflation Outlook

Yields on Brazil's interbank rate futures contract in January 2012 rose 4 basis points to 11.87 percent yesterday, indicating traders expect Tombini increase borrowing costs by approximately 200 basis points at the end of next year . Tombini, who has served on board the central bank since 2005, was confirmed by the Senate yesterday.

The central bank did not return a message seeking comment after business hours yesterday.

Francisco Lopes, who was acting president of the central bank before Fraga took office in 1999, also increased rates at its policy meeting first and only.

Brazilian economists raised their forecasts of inflation for the fifth consecutive week the central bank survey. Consumer prices will rise 5.38 percent in the next 12 months, according to the median forecast in the poll released Dec. 13.

Brazil's annual inflation target of 4.5 percent, plus or minus two percentage points.

"Little time to lose '

"There is little time to lose," said Marcelo Carvalho, chief of research in Latin America at Banco BNP Paribas Brasil in Sao Paulo, which projects an increase of 50 basis points next month, in a telephone interview. "Inflation argues for political action fast and prompt response."

The central bank's decision to raise reserve requirements earlier this month has led some traders and analysts to the conclusion that policy makers can use other tools to curb inflation, Latif said RBS, which provides increased 50 basis points in January.

The central bank raised reserve requirements on time deposits to 20 percent from 15 percent and raised an additional requirement for non-interest bearing accounts to 12 percent from 8 percent. The measures will remove 61 billion reais ($ 35,700,000,000) of the movement, according to the central bank.

"Analysts are not so sure that the adjustment should be significant," said Latif. "They know that other measures could help the central bank. And if not significant, maybe I could postpone again, as they did in December."