Brazil & Southern Cone - October 2008 (ISSN 1741-4431)

The central bank president, José de Gregorio, has claimed that he and his fellow policymakers had steered the economy through the financial crisis in September and October without incurring too much damage.The bank was quick to reverse its policy of buying dollars to keep the exchange rate competitive and to start selling dollars to banks so that they could have sufficient liquidity to avoid problems. The  bank also refused to increase interest rates at its 9 October meetings, holding them at 8.25%, despite a poor inflation figure for September. It expects the economy to grow faster in the second half of this year than in the first half. It noted that domestic demand was continuing to grow comparatively fast, which was leading to higher imports and a stable outlook for unemployment.  On 11 October the bank decided to inject US$5bn into the domestic money markets to improve liquidity. The move was similar to those announced by industrialised countries in North America; Europe and Asia. The move should also take some of pressure off the peso because the bank is selling dollars for pesos. The money will inject gradually, at weekly auctions of US$500m. The swaps (of pesos for dollars) will alternate between 60 days and 90 days.

Inflation:Consumer price inflation in September rose by 1.1% which was a bit above the consensus forecast for a rise of 0.8%. In August the CPI rose by 0.9%. The September figure meant that lagging 12 month inflation was 9.2%, well above the central bank's target for a rate of 3% a year. In 2007 inflation was 2.6%.