BRASILIA, Aug 8 (Reuters) – The perceived leniency of
Brazil’s central bank toward future inflation control has to be
fought, said one of its directors on Tuesday, acknowledging such
perception might be contributing to the detachment of inflation
expectations from official targets.
The bank’s economic policy director Diogo Guillen, speaking
at an event hosted by TAG Investimentos, underlined the
significance of the central bank’s credibility in tethering
inflation expectations for the years ahead.
In the minutes of the Aug. 1-2 interest rate-setting
meeting, policymakers had already mentioned this factor,
prompting former central bank director Alexandre Schwartsman of
the economic consultancy Schwartsman & Associados to remark in a
note to clients that the central bank had chosen to address the
“elephant in the room.”
Under a 2021 law granting formal autonomy to the central
bank, governor Roberto Campos Neto will remain in office until
December 2024. He assumed office in 2019 during the presidency
of Jair Bolsonaro, who lost the October 2022 election to Luiz
Inacio Lula da Silva.
Lula, who has attacked Campos Neto and the central bank for
keeping interest rates high to fight inflation, will eventually
replace all nine members of the bank’s board, which decides
monetary policy. Lula’s nominees will form a majority after
Campos Neto’s departure.
Schwartsman said that it is no secret that Lula intends to
tap people aligned with the government’s economic beliefs, a
move that contradicts the central bank’s effort to stress that
its credibility and reputation should be ensured regardless of
the board composition.
Last week, the bank embarked on an easing cycle with its
first cut of 50 basis points, reducing the benchmark interest
rate to 13.25%.
Guillen said that “it is necessary to build up much
stronger and greater confidence to intensify the pace of rate
cuts.”
He emphasized that the central bank has consistently
stressed the necessity of maintaining a contractionary monetary
policy throughout the cycle, adding that the calculated neutral
interest rate persists at 4.5%.
(Reporting by Marcela Ayres; Editing by Leslie Adler and Grant
McCool)
