Brazil sets 2009 inflation target of 4.5 percent

Brazil's government set an inflation target of 4.5 percent for 2009 on Tuesday, unchanged from previous years, heeding calls from President Luiz Inacio Lula da Silva to keep inflation under control but also stoke faster economic growth.
The National Monetary Council also maintained its tolerance band for the target, which the central bank uses to guide interest rates, at plus or minus two percentage points. The 4.5 percent annual inflation target has remained unchanged since 2005.
"The central bank should aim for the lowest inflation possible within the parameters established," said Finance Minister Guido Mantega, who announced the decision at a press conference.
Market analysts and investors, many of whom have called for a more aggressive anti-inflation target of 4 percent, criticised the move. "Brazil has to be more daring if it wants an investment grade (credit rating)," said Sandra Utsumi, chief economist for BES Investimentos in Sao Paulo. "A 4.5 target is higher than the global average."
Mantega and other officials have urged credit agencies like Standard & Poor's to move faster to upgrade Brazil's rating to investment grade, which would lower costs for servicing its large national debt. The monetary council includes Mantega, Meirelles and Budget and Planning Minister Paulo Bernardo.
Brazil suffered decades of hyperinflation before finally taming the problem in recent years. The government set an official 4.5 percent annual inflation target in 2005, and in 2006 consumer prices rose only 3.18 percent.
Lula, a working class president who threatened to default on the debt when he was a candidate, has told wage earners that low inflation is increasing their spending power.
But he has also said he wants the economy to grow at a faster 5-percent annual clip and that high interest rates are crimping growth. Last week he told Valor Economico newspaper that Brazil should not make more economic sacrifices to lower the inflation target.
The central bank has slashed its benchmark Selic lending overnight rate as inflation eased over the past two years, but at an annual 12 percent, the rate is still among the highest in the world.
Central Bank President Henrique Meirelles, seated next to Mantega Tuesday, said the central bank will continue to keep consumer prices under control and will aim for an inflation rate that is below the target. The 4.5 target gives policy-makers more flexibility to implement monetary policy, he said.