By Andre Soliani and Iuri Dantas
Nov. 24 (Bloomberg) -- Brazilian President-elect Dilma
Rousseff will appoint Alexandre Tombini as central bank head,
signaling she'll keep the policies that helped her predecessor
slow inflation to about 5 percent last month from as high as 17
percent in 2003.
The 46-year-old Tombini, who has served as a board member
since 2005, will replace Henrique Meirelles, 65, Brazil's
longest-serving central bank chief, two government officials
said on condition that they not be named because the decision
hasn't been made public. Meirelles, appointed in 2003, will
remain at the post until the end of President Luiz Inacio Lula
da Silva's administration on Dec. 31, one of the officials said.
The Bovespa index of most-traded stocks increased almost
sixfold under Meirelles and the real more than doubled against
the dollar, becoming the best performer amid the 16 most-traded
currencies tracked by Bloomberg. By tapping Tombini, Rousseff is
seeking to extend policies that helped Brazil win its first
investment grade rating in 2008, said Tony Volpon, a Latin
America strategist at Nomura Securities in New York.
"The fact that it is him instead of someone else ensures
the central bank won't be taken by a new heterodox philosophy --
that there will be continuity," Volpon said in a phone
interview.
Tombini, who has a doctorate in economics from Illinois
University, will need to be approved by the Senate.
The real gained 0.3 percent to 1.7302 per U.S. dollar at
10:41 a.m. in Sao Paulo. The yield on interest rate futures
contracts due in January 2012 rose 3 basis points to 11.86
percent.
Interest Rate Votes
Before joining the Brasilia-based central bank, Tombini was
the senior adviser to Brazil's executive director at the
International Monetary Fund. He's one of eight people who vote
to set interest rates in Brazil. The individual votes aren't
made public.
"This is the right moment to end the mission," Meirelles
told reporters in Brasilia today.
Rousseff will appoint Miriam Belchior as Planning Minister,
replacing Paulo Bernardo, according to Bernardo. The president-
elect invited Bernardo to her cabinet in a position that will be
determined later, he told reporters in Brasilia. Finance
Minister Guido Mantega will retain his position under Rousseff,
said a person familiar with her decision on Nov. 18.
The extra yield investors demand to hold Brazilian debt
rather than U.S. Treasuries has fallen to 189 basis points from
1,446 basis points on Dec. 31, 2002, the day before Lula took
office, according to JPMorgan Chase & Co.'s EMBI+ index.
'Greater Control'
Latin America's biggest 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.
Yields on interest rate future contracts rose across the
board on Monday amid speculation that Rousseff would replace
Meirelles and end the bank's operational autonomy, potentially
skewing policy in favor of economic growth at the expense of
faster inflation.
"Tombini has a good education, he's a professional," said
Pedro Tuesta, a Washington-based economist for Latin America at
4Cast Inc. "The problem is that this gives the impression that
Dilma wants to have greater control of the central bank. I'm not
saying that's the way it is. She gives us that impression, and
the impression has a certain base."
Central bank policy makers are appointed and removed by the
country's president and aren't limited by set terms. Lula
appointed Meirelles to replace Arminio Fraga at the start of his
term.
'Showdown Coming'
Traders are wagering policy makers will be forced to resume
interest rate increases early next year and push the benchmark
interest rate to as high as 12.75 percent by the end of 2011,
according to Bloomberg estimates based on interest rate futures.
"There's a wide gap between the market pricing in what is
needed and what some policy makers are hoping to be able to
accomplish," said Gray Newman, chief Latin America economist at
Morgan Stanley in New York, who expects the bank to raise rates
to 12.5 percent next year.
"There's a showdown coming," said Newman. "The market is
expecting a pretty significant series of rate hikes and yet I
think the new policy team is trying to adopt measures that will
allow the central bank to cut rates."
Rising Inflation
Bond traders are betting Brazil will miss its inflation
target for the first time since 2003 as commodity prices jump
and concern builds that Rousseff will fail to curb spending.
Investor expectations for annual inflation over the next
two years, implied by the yield difference between the
government's inflation-linked and fixed-rate notes, rose to 6.68
percent as of yesterday, the highest since November 2008. That
gap, known as the breakeven rate, tops the 6.5 percent upper
limit in the bank's target range for consumer price increases.
By tapping a policy maker who has worked under Meirelles, a
former head of global banking at FleetBoston Financial Corp. for
more than five years, Rousseff may be seeking to ease investor
concerns.
"The Brazil market has matured enough that the change in a
member of the central bank doesn't imply great movements in the
market as long as we know the philosophical position of the new
central banker," said Alfredo Coutino, Latin America director
for Moody's Analytics. "A person from the same board should
bring relative calm to the markets."
For Related News and Information:
News on Brazil's central bank: TNI CEN BRAZIL <GO>
Top Latin America news: TOPL <GO>
News on BRIC countries: STNI BRICS <GO>
Stories on Brazil: NI BRAZIL <GO>
News on the Brazilian economy: TNI BRAZIL ECO <GO>
Surveys on Brazil's Economy: ECO BZ <GO>
Central Bank Interest Rate Decisions: CPOM <GO>
Brazil's Annual Consumer Prices: BZPIIPCY <Index> GP <GO>
--With assistance by Jens Gould and Jon Levin in Mexico City,
and Carla Simoes, Iuri Dantas and Arnaldo Galvao in Brasilia.
Editors: Harry Maurer, Andrew J. Barden
To contact the reporters on this story:
Andre Soliani in Brasilia at +55-61-3329-1605 or
asoliani@bloomberg.net;
Arnaldo Galvao in Brasilia at +55-61-3329-1608 or
agalvao1@bloomberg.net
To contact the editor responsible for this story:
Joshua Goodman at +55-21-2125-2535 or jgoodman19@bloomberg.net
Nov. 24 (Bloomberg) -- Brazilian President-elect Dilma
Rousseff will appoint Alexandre Tombini as central bank head,
signaling she'll keep the policies that helped her predecessor
slow inflation to about 5 percent last month from as high as 17
percent in 2003.
The 46-year-old Tombini, who has served as a board member
since 2005, will replace Henrique Meirelles, 65, Brazil's
longest-serving central bank chief, two government officials
said on condition that they not be named because the decision
hasn't been made public. Meirelles, appointed in 2003, will
remain at the post until the end of President Luiz Inacio Lula
da Silva's administration on Dec. 31, one of the officials said.
The Bovespa index of most-traded stocks increased almost
sixfold under Meirelles and the real more than doubled against
the dollar, becoming the best performer amid the 16 most-traded
currencies tracked by Bloomberg. By tapping Tombini, Rousseff is
seeking to extend policies that helped Brazil win its first
investment grade rating in 2008, said Tony Volpon, a Latin
America strategist at Nomura Securities in New York.
"The fact that it is him instead of someone else ensures
the central bank won't be taken by a new heterodox philosophy --
that there will be continuity," Volpon said in a phone
interview.
Tombini, who has a doctorate in economics from Illinois
University, will need to be approved by the Senate.
The real gained 0.3 percent to 1.7302 per U.S. dollar at
10:41 a.m. in Sao Paulo. The yield on interest rate futures
contracts due in January 2012 rose 3 basis points to 11.86
percent.
Interest Rate Votes
Before joining the Brasilia-based central bank, Tombini was
the senior adviser to Brazil's executive director at the
International Monetary Fund. He's one of eight people who vote
to set interest rates in Brazil. The individual votes aren't
made public.
"This is the right moment to end the mission," Meirelles
told reporters in Brasilia today.
Rousseff will appoint Miriam Belchior as Planning Minister,
replacing Paulo Bernardo, according to Bernardo. The president-
elect invited Bernardo to her cabinet in a position that will be
determined later, he told reporters in Brasilia. Finance
Minister Guido Mantega will retain his position under Rousseff,
said a person familiar with her decision on Nov. 18.
The extra yield investors demand to hold Brazilian debt
rather than U.S. Treasuries has fallen to 189 basis points from
1,446 basis points on Dec. 31, 2002, the day before Lula took
office, according to JPMorgan Chase & Co.'s EMBI+ index.
'Greater Control'
Latin America's biggest 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.
Yields on interest rate future contracts rose across the
board on Monday amid speculation that Rousseff would replace
Meirelles and end the bank's operational autonomy, potentially
skewing policy in favor of economic growth at the expense of
faster inflation.
"Tombini has a good education, he's a professional," said
Pedro Tuesta, a Washington-based economist for Latin America at
4Cast Inc. "The problem is that this gives the impression that
Dilma wants to have greater control of the central bank. I'm not
saying that's the way it is. She gives us that impression, and
the impression has a certain base."
Central bank policy makers are appointed and removed by the
country's president and aren't limited by set terms. Lula
appointed Meirelles to replace Arminio Fraga at the start of his
term.
'Showdown Coming'
Traders are wagering policy makers will be forced to resume
interest rate increases early next year and push the benchmark
interest rate to as high as 12.75 percent by the end of 2011,
according to Bloomberg estimates based on interest rate futures.
"There's a wide gap between the market pricing in what is
needed and what some policy makers are hoping to be able to
accomplish," said Gray Newman, chief Latin America economist at
Morgan Stanley in New York, who expects the bank to raise rates
to 12.5 percent next year.
"There's a showdown coming," said Newman. "The market is
expecting a pretty significant series of rate hikes and yet I
think the new policy team is trying to adopt measures that will
allow the central bank to cut rates."
Rising Inflation
Bond traders are betting Brazil will miss its inflation
target for the first time since 2003 as commodity prices jump
and concern builds that Rousseff will fail to curb spending.
Investor expectations for annual inflation over the next
two years, implied by the yield difference between the
government's inflation-linked and fixed-rate notes, rose to 6.68
percent as of yesterday, the highest since November 2008. That
gap, known as the breakeven rate, tops the 6.5 percent upper
limit in the bank's target range for consumer price increases.
By tapping a policy maker who has worked under Meirelles, a
former head of global banking at FleetBoston Financial Corp. for
more than five years, Rousseff may be seeking to ease investor
concerns.
"The Brazil market has matured enough that the change in a
member of the central bank doesn't imply great movements in the
market as long as we know the philosophical position of the new
central banker," said Alfredo Coutino, Latin America director
for Moody's Analytics. "A person from the same board should
bring relative calm to the markets."
For Related News and Information:
News on Brazil's central bank: TNI CEN BRAZIL <GO>
Top Latin America news: TOPL <GO>
News on BRIC countries: STNI BRICS <GO>
Stories on Brazil: NI BRAZIL <GO>
News on the Brazilian economy: TNI BRAZIL ECO <GO>
Surveys on Brazil's Economy: ECO BZ <GO>
Central Bank Interest Rate Decisions: CPOM <GO>
Brazil's Annual Consumer Prices: BZPIIPCY <Index> GP <GO>
--With assistance by Jens Gould and Jon Levin in Mexico City,
and Carla Simoes, Iuri Dantas and Arnaldo Galvao in Brasilia.
Editors: Harry Maurer, Andrew J. Barden
To contact the reporters on this story:
Andre Soliani in Brasilia at +55-61-3329-1605 or
asoliani@bloomberg.net;
Arnaldo Galvao in Brasilia at +55-61-3329-1608 or
agalvao1@bloomberg.net
To contact the editor responsible for this story:
Joshua Goodman at +55-21-2125-2535 or jgoodman19@bloomberg.net
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