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Related News: Davos Tombini Says Brazil Needs Macro Prudential Policies By Andre Soliani and Iuri Dantas – Fri Jan 28 13:23:28 GMT 2011 Brazil’s central bank President Alexandre Tombini listens during a session on the third day of the World Economic Forum Annual Meeting 2011 in Davos. Photographer: Andrew Harrer/Bloomberg

Brazil’s central bank President Alexandre Tombini said policy makers need to put in place “sound, macro prudential” policies to contain inflation and an “excessive” appreciation of the currency.

“We have to have an enlarged tool kit” to ensure monetary and financial stability amid excessive international liquidity, Tombini said today on a panel at the World Economic Forum in Davos, Switzerland. “We have to put in place sound, macro prudential policies as we’ve done.”

After the speech Tombini said he was referring to measures already taken.

To slow the fastest inflation in more than two years, Brazilian policy makers said they will rely on higher interest rates and measures to slow credit, labeled as macro prudential policies, according to the minutes of their Jan. 18-19 meeting published yesterday. The central bank raised the benchmark interest rate by 50 basis points last week and signaled it plans to maintain the pace of rate increases in March, the minutes show.

Since December, the government has increased reserve and capital requirement to slow credit growth, adopted measures to discourage bets against the dollar and lifted the overnight rate to 11.25 percent from 10.75 percent. The steps aim to rein in consumer prices while trying to temper a 39 percent rally of the real in the past two years.

‘Excessive Appreciation’

Brazil has “to address the excessive appreciation of one important asset, which is the exchange rate,” Tombini said today.

The real strengthened to 1.6750 per U.S. dollar from 1.6764 yesterday at 8:17 a.m. New York time. Yields on interest rate futures contracts due January 2013, the most traded in Sao Paulo, fell four basis points to 12.85 percent.

Inflation, as measured by the benchmark IPCA-15 price index, quickened to 6.04 percent in the 12 months through mid- January, the fastest pace since December 2008. The central bank targets inflation of 4.5 percent with a plus or minus two- percentage-point leeway to accommodate price shocks.

“We are addressing the issue of inflation, which is related to commodity price shocks,” Tombini said. “That is not a huge problem. We are within our target range.”

Tombini said President Dilma Rousseff’s administration faces the challenge of dealing with “abundance.”

Latin America biggest economy last year expanded 7.3 percent, according to central bank estimates. Growth will slow to 4.5 percent this year, the bank said.

“We have too much demand today, we have too much capital flowing in,” Tombini said.

To contact the reporters on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net; Iuri Dantas in Brasilia at idantas@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net