Brazil’s central bank leadership on Monday reaffirmed the need for a cautious, data-driven approach to monetary policy, despite stubborn inflation and rising economic uncertainty.
Deputy Governor Gabriel Galipolo, speaking at a J. Safra event in São Paulo, stressed that building policymakers’ confidence in inflation’s return to the official target was crucial.
“It is essential to gather sufficient and diverse data to build this level of confidence,” Galipolo said, emphasizing that the central bank remains focused on a holistic view of the economy rather than reacting to isolated data points.
Since beginning its tightening cycle last September, Brazil’s central bank has raised its benchmark interest rate by 375 basis points to 14.25%, according to Reuters. However, inflation remains well above the 3% target, reinforcing the need for continued vigilance.
Galipolo noted early signs of economic cooling but described them as “very incipient,” suggesting monetary policy effects have yet to fully materialize. Despite aggressive rate hikes, inflation expectations remain unanchored, and current inflationary pressures are still too high.
He warned that monetary policy requires patience, as its impacts are delayed. “The process of disinflation requires patience,” Galipolo said, adding that the central bank would wait for clearer evidence of progress before adjusting its stance.
Future rate hikes to be smaller
Following the March policy meeting, central bank officials signaled the likelihood of another rate hike, though smaller than the previous three consecutive 100-basis-point increases.
Galipolo’s remarks reaffirmed that the bank’s forward guidance from March “stood well in the last 40 days,” suggesting no rush to change course even as economic conditions evolve.
This consistency signals the central bank’s commitment to transparency and credibility amid global financial turbulence.
Galipolo pointed to rising local and international risks, emphasizing the need for heightened caution. He flagged three main concerns: entrenched inflation dynamics, persistent unanchored inflation expectations, and the long lag between policy action and real economic effects.
Balancing growth and inflation
Brazil’s central bank now faces a delicate balancing act — containing inflation without unduly restricting a domestic economy that is beginning to show signs of strain.
Galipolo suggested that while more tightening may still be necessary, it will proceed with greater sensitivity to fresh economic data and evolving conditions.
The cautious, data-driven approach aims to ensure that Brazil’s monetary policy remains flexible, credible, and effective in maintaining price stability while protecting growth prospects.
The post Brazil central bank to proceed carefully with rate hikes as inflation pressures linger appeared first on Invezz
