BRASILIA (Reuters) -Brazil’s central bank has expressed concern at increased inflation expectations, reinforcing signs that it is not considering monetary easing anytime soon.
The central bank’s hawkish comments, which came in the minutes of its Jan.31-Feb.1 meeting published on Tuesday, came amid mounting tensions between leftist President Luiz Inacio Lula da Silva and bank chief Roberto Campos Neto.
Lula has said the bank’s current 13.75% benchmark rate is far too high given the country’s inflation trajectory, and is causing an unnecessary drag on growth. Lula’s stance has hit Brazil’s real currency, and is driving investor concern over his commitment to the bank’s independence.
In its minutes from the meeting, when the rate-setting committee held rates, the bank said a fiscal framework revision and government stimulus package may lead to upward pressure on consumer prices.
But it also mentioned for the first time a package of fiscal measures presented by the government. Some committee members said the Finance Ministry’s fiscal package should mitigate the risks, although “it will be important to monitor the challenges for its implementation,” the minutes said.
The bank noted “with concern” that inflation expectations were drifting further from official targets over longer horizons. Market sentiment was possibly influenced by perceived policymakers’ leniency, expansionary fiscal policy and potential changes to inflation goals, it said.
Yet policymakers reaffirmed their commitment to meeting inflation goals.
Caio Megale, chief economist at XP, said the hawkish tone suggests rate setters see little room, if any, for easing monetary policy until early next year.
Finance Minister Fernando Haddad told journalists on Tuesday that the minutes were better than the central bank’s statement, as they recognized the Treasury’s work on fiscal measures.
(Reporting by Marcela Ayres; Editing by Steven Grattan, Alexandra Hudson and Jonathan Oatis)
