Brazilian central bank chief calls rising inflation expectations worrying

Brazilian central bank chief calls rising inflation expectations worrying
Brazilian central bank chief calls rising inflation expectations worrying

Brazil’s central bank chief Roberto Campos Neto said Friday that rising inflation expectations were “very bad news” for the central bank.

Speaking at an FGV event, he cited several factors behind the gap between inflation forecasts and the official 3% target, including tax policy, external factors and doubts about credibility of the central bank.

In the central bank’s latest weekly survey of private economists, expectations for 2025, the year that policymakers take into account for their policy actions, rose for the third consecutive week to 3.74%.

“Inflation expectations have been very bad news for the central bank,” Campos Neto said. “We have seen inflation forecasts rise significantly, 2025 (inflation forecasts) will also impact longer-term forecasts.

When policymakers cut interest rates by 25 basis points earlier this month, to 10.50%, after six cuts twice as large, they pointed to unanchored expectations as one of the factors that prevented the signaling of future measures to be taken.

Since then,

public statements

Monetary authorities seen as hawkish have increased bets on a potential pause in the easing cycle at the next monetary policy meeting in June.

Following catastrophic floods in the southernmost state of Rio Grande do Sul, which left a trail of destruction, caused 163 deaths and displaced more than 580,000 people, Campos Neto said food prices in Brazil could rise slightly this year following these events, which would affect the reading of the index.

He also said he had heard different estimates regarding the cost of rebuilding the state, ranging from 0.2% to 2% of gross domestic product (GDP).

Campos Neto added that the central bank’s concern is how these developments will affect the macroeconomic variables that are part of its reaction function. (Reporting by Marcela Ayres, Editing by Chris Reese and Diane Craft)

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