Global: Brazil’s Central Bank Remains Firmly Committed to 3% Inflation Target, Emphasize Board Members

Reaffirming their dedication to Brazil’s 3% inflation target, board members of the country’s central bank emphasized their unwavering commitment on Wednesday. Despite disagreements over lowering interest rates at the recent monetary policy meeting, officials expressed shared concerns about escalating price expectations.

Governor Roberto Campos Neto underscored the central bank’s resolute stance, asserting that the target remains non-negotiable. Likewise, monetary policy director Gabriel Galipolo affirmed that the objective is steadfast and not subject to debate.

These statements underscored the bank’s hawkish posture following last week’s divided decision to reduce interest rates by 25 basis points to 10.50%, a departure from six consecutive cuts of twice that size. Notably, all four of President Luiz Inacio Lula da Silva’s appointees to the nine-member board advocated for a 50-basis-point reduction, aligning with guidance provided in March.

The remarks by officials further solidified expectations, reflected in interest rates futures, that the bank might halt its easing cycle as soon as the upcoming monetary policy meeting in June.

Governor Campos Neto, speaking at a central bank event in Brasilia, emphasized the clarity and pursuit of their mandate, stressing that policy discussions should remain within the confines of the target, excluding its tolerance band of plus or minus 1.5 percentage points. Shortly thereafter, Galipolo echoed Campos Neto’s sentiments at an event in New York.

Galipolo, considered a frontrunner to succeed Campos Neto upon the conclusion of his term in December, disclosed that while he had contemplated a 25-basis-point cut, he ultimately voted for a 50-basis-point reduction to maintain consistency with previous guidance and public statements.

Campos Neto highlighted discussions among policymakers regarding the significance of inflation expectations, acknowledging substantial discomfort with their deviation from the target. He emphasized the value of conveying this concern by slowing the pace, as advocated by the five colleagues who supported the 25-basis-point cut.

Policymakers have observed a rise in inflation expectations, evident in market prices and economist surveys, following a period of stability. Campos Neto justified the smaller rate cut based on various factors, including expectations of sustained high U.S. interest rates, robustness in Brazil’s labor market affecting service prices, food inflation risks, and uncertainties surrounding oil prices.