Brazil’s central bank chief, Gabriel Galipolo, said on Monday that he sees evident signs that Latin America’s largest economy is still holding strong, even as inflationary pressures endure and the current account deficit widens.
At an event held at the Fernando Henrique Cardoso Foundation, Galipolo added that the economic fundamentals of the country remain strong.
According to him, the “hot” labour market and the huge current account deficit are two common indicators of domestic demand in Brazil.
Galipolo added that the deficit is “a textbook sign of a booming economy,” and disputing the job market’s vigour is equivalent to “data denial.”
His comments come as economists argue whether Brazil’s recent slowdown in industrial output signifies the beginning of a larger cooling trend.
Inflation is still far from the target
Galipolo noted that inflation is significantly above the central bank’s official objective of 3%.
He highlighted that meeting the aim requires a clear policy commitment, and that the 1.5-percentage-point tolerance range on either side of the goal should only be used to absorb temporary shocks.
“Current inflation remains far from the official target,” Galipolo stated, emphasising that services inflation, in particular, is still incompatible with attaining the target.
Policymakers see price pressures in services, which are generally driven by wages and domestic demand, as a major impediment to getting inflation back to target levels.
Policy stance: high rates for longer
The central bank has maintained its benchmark interest rate at a near-20-year high of 15% for the second consecutive meeting.
This move comes after an aggressive tightening cycle that increased the cost of borrowing by 450 basis points in an attempt to bring down inflation.
Galipolo reiterated that the bank anticipates sustaining interest rates at such levels “for an extended period of time,” which was a reflection that policymakers remain unconvinced that inflation expectations had become completely anchored.
Persistent concerns among market participants regarding the credibility of the 3% target continue to be a significant hurdle for many members of the rate-setting committee, he said.
This stance also indicates a wider fear that an early pivot may set back inflation advances.
Brazil’s elevated rates have been an anchor to prices.
Economists point out that it has also curbed investment and consumer credit, putting the central bank between a rock and a hard place as it tries to keep growth going without fueling inflation again.
Lula and Trump video call sparks market interest
Beyond monetary policy, political concerns drew market attention this week.
Brazilian President Luiz Inacio Lula da Silva and US President Donald Trump enjoyed a “positive” videoconference call on Monday, according to Brazil’s Finance Minister Fernando Haddad.
“President Lula has already recommended the release of a statement,” Haddad told reporters in Brasilia following the meeting.
Last month, during a brief contact at the United Nations General Assembly in New York, Trump stated that he wanted to meet with Lula, emphasising their “excellent chemistry”.
Brazilian markets have been closely watching the meeting between the two leaders since Trump levied a 50% tax on some Brazilian exports in August.
At the time, Trump claimed the tariffs were in retaliation for what he called a “witch hunt” against his ally, former Brazilian President Jair Bolsonaro, who was eventually convicted to 27 years in prison for attempting to stage a coup to retain office after losing the 2022 elections to Lula.
Economic outlook
Galipolo’s statements suggest that the central bank will prioritise price stability over growth concerns in the short term.
Despite the fact that inflation remains over the target, service prices are high, and the uncertain global outlook is weighing on developing markets, Brazilian monetary authorities are likely to maintain a restrictive approach.
The chief of Brazil’s central bank says the economy is still doing well at its core, but high interest rates and a turbulent world will put that to the test in the months ahead.
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