Brazil's central bank raised its 2008 and 2009 inflation forecasts on Monday and said the expansion of domestic demand would be the primary factor dictating the course of future monetary policy. In its quarterly inflation report, the bank said that the benchmark IPCA consumer price index should rise 6.1 percent in 2008, up from a 6 percent estimate in June.
The bank cited an increase in commodity prices stemming from greater global demand for the slight rise in its inflation forecast. For 2009, it forecast inflation at 4.8 percent, compared with a previous estimate of 4.7 percent. "In the coming months, as temporary price pressures are dissipated, the behaviour of activity takes a growing importance to (inflation) dynamics," the bank said in the report.
The bank said growth in Brazil's economy should see "some moderation" because of an expected slowdown in global markets. However, it added that a surge in local credit and an increase in employment and government transfers should keep domestic demand buoyant.
The bank's monetary policy committee, known as Copom, raised its benchmark Selic rate by 75 basis points to 13.75 percent this month. Policy-akers have lifted borrowing costs by 2.5 percentage points since April, hiking the Selic four times to its highest level in almost two years. "The committee sees that the pace of expansion in domestic demand continues to be the predominant factor in the balance of risks to the inflation dynamics," the bank said.
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