Brazil’s central bank chief, Roberto Campos Neto, has raised concerns over a significant de-anchoring of inflation expectations, emphasizing the importance of returning inflation to the 3% target. Speaking at a 20-20 Investment Association event on Monday, Campos Neto highlighted the central bank’s commitment to restoring price stability amid rising inflationary pressures.
According to Campos Neto, consumer prices had been gradually aligning with the central bank’s inflation target but recently stalled. Both market and corporate surveys indicate inflation expectations are drifting away from the target, a trend mirrored in market prices. To counter this, the central bank initiated a 25-basis-point interest rate hike to 10.75% last month. Campos Neto affirmed that the central bank remains dedicated to making inflation converge with the official target, calling it a key mission driven by government policy.
The central bank’s next monetary policy meeting in November could bring further tightening, with market indicators pointing to a potential 50-basis-point rate hike. Campos Neto stressed the importance of closely monitoring services inflation, especially given Brazil’s tight labor market.
Despite high borrowing costs, Brazil’s labor market has remained resilient, which Campos Neto described as a “puzzle.” He attributed part of this strength to fiscal stimulus but also pointed to structural reforms made over the past five to 10 years as key contributors to Brazil’s unexpected economic growth.
While there is growing concern about the impact of fiscal policies, Campos Neto believes the underlying strength of the economy stems from both fiscal factors and long-term structural changes, which have bolstered Brazil’s economic performance.
As Brazil grapples with inflation challenges, the central bank’s actions in the coming months will be critical to steering the economy toward stability.
