At a recent event hosted by the 20-20 Investment Association, Roberto Campos Neto, the chief of Brazil’s central bank, expressed concern about the country’s rising inflation expectations.
He emphasized the urgent need to return inflation to the objective of 3% and assured audiences of policymakers’ unwavering commitment to achieving this goal.
Campos Neto emphasized the importance of closely watching inflation in the services sector, especially given signs of a tight labour market.
He also reiterated that policymakers have chosen to refrain from making any immediate monetary decisions, preferring instead to carefully assess the changing economic situation.
Spotting economic trends
He added that, while consumer prices in Brazil were in line with the central bank’s targets, recent data revealed a concerning gap in expectations, as seen by both market research and business surveys.
This disparity suggests a departure from the stated inflation objective, as do inflation forecasts based on market pricing.
With signs of inflation expectations becoming unanchored, the central bank acted decisively last month by raising the key interest rate by 25 basis points to 10.75%.
Campos Neto stressed the need to align inflation with the established target, reaffirming the central bank’s determined approach to fulfil this mandate from the government.
Looking ahead at policy directions
As the central bank prepares for its upcoming monetary policy meeting in November, many in the market anticipate a possible increase of 50 basis points.
Campos Neto expressed surprise at the labour market’s continued strength despite rising borrowing costs, partially linking this robustness to ongoing fiscal stimulus.
Central bank’s chief pointed out that Brazil’s economic performance has consistently exceeded expectations, thanks in part to the structural reforms enacted over the last five to ten years.
These reforms have been crucial in driving economic growth and resilience in a challenging macroeconomic environment.
In conclusion, Brazil’s central bank is committed to addressing inflationary challenges and maintaining macroeconomic stability.
Campos Neto’s remarks highlight the vital need to align inflation with targets and to pursue careful monetary strategies that foster sustainable economic growth amid an ever-changing economic landscape.
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