Brazil’s central bank reaffirms hawkish stance remains confident in inflation path
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Brazil’s central bank restated confidence that the country’s 15% benchmark interest rate should be high enough to steer inflation back toward its 3% target.
The bank said in the minutes of its latest policy meeting published on Tuesday that recent economic developments are progressing basically as it had expected, reinforcing its confidence that the current stance is appropriate.
“The committee proceeds with the stage in which it opts to keep the rate unchanged for a very prolonged period, but with greater confidence that the current rate is enough to ensure the convergence of inflation to the target,” according to the minutes.
The declaration comes after the central bank decided last week to maintain the Selic rate unchanged for the third week in a row, holding it near a 20-year high.
Policymakers highlighted that the current tightening cycle is focused on maintaining stability and patience, indicating that no rate reduction is anticipated.
Inflation expectations easing, but still above target
The move comes as market inflation expectations fall more quickly and signs of a slowdown become clearer in the largest economy in Latin America.
Although the minutes indicated a cooling economic environment, officials remain cautious, adding that inflation expectations, whilst easing, still exceed the 3% target throughout the entire forecasting horizon.
The central bank said services inflation holds up, in part on the back of a labour market which remains strong.
This continuity highlights the challenge of achieving complete inflation convergence in the presence of other disinflationary forces in the economy.
“Perseverance, determination, and serenity in the conduct of monetary policy will support the continuation of this movement, which is crucial for the convergence of inflation to the target at a lower cost,” the document said.
Policy stance remains conservative and data-dependent
The officials reiterated that the bank would be “cautious and data dependent” in its future moves, saying it would respond to changing financial and credit market dynamics but not rush to change course.
The minutes reinforced how the bank was treating a number of recent measures, as previously expected to induce divergences from prior projections, as having little impact thus far.
The decision to remain steadfast by the central bank is an attempt to keep expectations pegged and maintain its credibility, while watching incoming data for clues of inflationary pressure and developments on the fiscal front.
Monitoring fiscal policy and uncertain tax impact
The minutes also described an early calculation of how to account for the effects of the government’s decision to widen income tax exemptions earlier this month.
The law, recently confirmed by Congress, meets a central pledge from President Luiz Inácio Lula da Silva in the run-up to the 2026 races.
While the central bank accepted the revision in its inflation estimates, it noted that the overall effect remains “highly uncertain” and will be continually examined in the coming months.
Analysts have warned that the action may increase inflationary pressure by increasing discretionary income, thus complicating the disinflation process.
The bank, however, said it would monitor the fiscal and broader macroeconomic impact before modifying its policy.
The post Brazil's central bank reaffirms hawkish stance remains confident in inflation path appeared first on Invezz
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Brazil’s central bank reaffirms hawkish stance remains confident in inflation path
Share:
Brazil’s central bank restated confidence that the country’s 15% benchmark interest rate should be high enough to steer inflation back toward its 3% target.
The bank said in the minutes of its latest policy meeting published on Tuesday that recent economic developments are progressing basically as it had expected, reinforcing its confidence that the current stance is appropriate.
“The committee proceeds with the stage in which it opts to keep the rate unchanged for a very prolonged period, but with greater confidence that the current rate is enough to ensure the convergence of inflation to the target,” according to the minutes.
The declaration comes after the central bank decided last week to maintain the Selic rate unchanged for the third week in a row, holding it near a 20-year high.
Policymakers highlighted that the current tightening cycle is focused on maintaining stability and patience, indicating that no rate reduction is anticipated.
Inflation expectations easing, but still above target
The move comes as market inflation expectations fall more quickly and signs of a slowdown become clearer in the largest economy in Latin America.
Although the minutes indicated a cooling economic environment, officials remain cautious, adding that inflation expectations, whilst easing, still exceed the 3% target throughout the entire forecasting horizon.
The central bank said services inflation holds up, in part on the back of a labour market which remains strong.
This continuity highlights the challenge of achieving complete inflation convergence in the presence of other disinflationary forces in the economy.
“Perseverance, determination, and serenity in the conduct of monetary policy will support the continuation of this movement, which is crucial for the convergence of inflation to the target at a lower cost,” the document said.
Policy stance remains conservative and data-dependent
The officials reiterated that the bank would be “cautious and data dependent” in its future moves, saying it would respond to changing financial and credit market dynamics but not rush to change course.
The minutes reinforced how the bank was treating a number of recent measures, as previously expected to induce divergences from prior projections, as having little impact thus far.
The decision to remain steadfast by the central bank is an attempt to keep expectations pegged and maintain its credibility, while watching incoming data for clues of inflationary pressure and developments on the fiscal front.
Monitoring fiscal policy and uncertain tax impact
The minutes also described an early calculation of how to account for the effects of the government’s decision to widen income tax exemptions earlier this month.
The law, recently confirmed by Congress, meets a central pledge from President Luiz Inácio Lula da Silva in the run-up to the 2026 races.
While the central bank accepted the revision in its inflation estimates, it noted that the overall effect remains “highly uncertain” and will be continually examined in the coming months.
Analysts have warned that the action may increase inflationary pressure by increasing discretionary income, thus complicating the disinflation process.
The bank, however, said it would monitor the fiscal and broader macroeconomic impact before modifying its policy.
The post Brazil's central bank reaffirms hawkish stance remains confident in inflation path appeared first on Invezz
Read More
Commodity wrap: gold jumps as weak US data fuels bets on Fed rate cut; oil rises