Dec. 12 -- Brazil's economy expanded in the third quarter at the fastest pace in more than three years, stoking speculation that the central bank may keep borrowing costs unchanged for most of 2008 to cap inflation.
Gross domestic product rose 5.7 percent in the third quarter, compared with a revised 5.6 percent increase in the second quarter, the government said. The expansion was above the median 4.9 percent forecast in a Bloomberg survey of 37 analysts.
Growth in Latin America's biggest economy is surging as record low interest rates power consumer and business spending. A jump in corporate investment last quarter may do little to add output capacity fast enough to prevent a rise in prices, prompting the central bank to keep rates on hold, said Nuno Camara, a senior economist for Dresdner Kleinwort Group.
``Investment was very strong, which will make the investor more confident about the sustainability of growth,'' Camara said in an interview from Sao Paulo. ``But more investment means bigger aggregate demand, which is another sign the central bank should keep a cautious scenario.''
Latin America's biggest economy expanded 1.7 percent from the previous quarter, faster than the revised 1.3 percent pace in the second quarter, according to the Rio de Janeiro-based statistics agency.
In the four quarters ended Sept. 30, the economy grew 5.2 percent from 4.9 percent in the same period ended in June, the biggest accumulated annual growth rate since the end of 2004.
Rates, Target
Brazil's central bank over the two years through September lowered the benchmark lending rate 18 straight times from 19.75 percent to 11.25 percent, the longest easing cycle since the so- called Selic was adopted in 1999.
The rate cuts, while fueling investment and output in the $1.1 billion economy, have also stoked annual inflation, which quickened to 4.19 percent last month from an eight-year low of 2.96 percent in March.
Accelerating inflation, growth and industrial output prompted the bank to call a pause to rate reductions on Oct. 17 and again on Dec. 5. The bank board next meets Jan. 22-23.
Inflation measured by the IGP-M index, Brazil's broadest, accelerated 1.1 percent for the 10 days ended Dec. 1, research institute Fundacao Getulio Vargas said today.
Prices in the city of Sao Paulo posted their biggest monthly increase since January this week, the University of Sao Paulo said today.
Output, Lending
A Dec. 5 report on industrial production, a proxy for growth, showed output in October climbed the most in three years, the national statistics agency said.
The 10.3 percent gain exceeded the 5.4 percent increase in September and the 8.9 percent median forecast in a Bloomberg survey of 34 economists. Factories in Brazil are operating at a record 84 percent of installed capacity, the National Industry Confederation, Brazil's largest industry lobby group, said.
Brazilian bank lending rose 2.7 percent in October from a month earlier to 880.8 billion reais ($473.6 billion) from a revised 857.3 billion reais in September, the central bank said Nov. 27. Lending climbed 26.3 percent from October 2006.
`Prudent'
Still, the bank may have leeway to resume cutting the benchmark rate, Latin America's highest, after the second half of 2008, said Alexandre Lintz, senior Latin America economist with BNP Paribas SA in Sao Paulo. He expects the bank to trim the Selic by another point to 10.25 percent by the end of 2008.
``Solid growth won't prevent rates from falling further in 2008,'' said Lintz. ``But at this point, markets are urging policy makers to remain prudent and handle growth more cautiously.''
The yield on the interbank deposits future rate contract due Jan. 2009 rose as much as 9 basis points, or 0.09 percentage point, to 11.83 percent, the highest yield since Aug. 24.
Investors use the contract to bet on future moves by the so-called Selic target rate. The yield fell to 11.82 percent at 1:08 p.m. New York time.
Jobs, Production
The result is also a boost for President Luiz Inacio Lula da Silva, who has focused his policies on sparking growth and job creation ahead of mayoral elections in October next year.
Brazil's government-registered jobs rose 58 percent in October from a year-ago month, the Labor Ministry said Nov. 14.
The economy created 205,260 formal jobs in October compared with 129,795 in October 2006. In the first 10 months, the economy created 1.81 million jobs, a 20 percent increase compared to the same period of 2006.
Manufacturing, powered by capital spending, led growth higher in the quarter after posting a 5.8 percent increase from the same period a year earlier, the agency said.
The services industry, a measure of consumer spending that accounts for about 60 percent of the economy, rose 4.8 percent in the third quarter. Agriculture, which accounts for less than 10 percent of GDP, soared 9.2 percent last quarter.
Camara plans to boost his 2007 growth estimate ``above'' 5 percent from 4.8 percent. ABN Amro Bank NV economist Zeina Latif boosted hers to 5.2 percent from 4.5 percent.
The bank predicts growth of 4.7 percent, according to its quarterly report released in September.
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