Brazil’s central bank chief says tight policy needed despite inflation slowdown

BRASILIA (Reuters) – Brazilian central bank chief Roberto Campos Neto on Wednesday said policymakers need to persevere in anchoring inflation to the official target, but acknowledged the progress made in cooling consumer prices.

Speaking at a hearing in the lower house of Congress, he noted that core inflation had been “falling a lot.” The disinflation process is underway, but it still requires tight monetary policy, he added.

According to Campos Neto, mid-September inflation, which reached 5% on an annual basis, was significantly impacted by higher gasoline prices.

He commended the government for its decision to maintain the inflation target at 3%, highlighting that it was a crucial step for the monetary easing cycle to begin.

Central bank policymakers have cut the benchmark interest rate by 50 basis points in each of the meetings this month and in August, bringing it down to 12.75% after holding it steady for nearly a year to tame high inflation.

Campos Neto told lawmakers that it was important for the government to try to reach its new fiscal rules, which include eliminating Brazil’s primary budget deficit by 2024. The central bank had emphasized that message in its most recent statement.

He said that markets will assess the efforts to meet these goals, even if they are not fully realized.

Economist are skeptical that the fiscal targets can be met, as they heavily rely on revenue increases, many of which are uncertain and contingent on congressional approval.

(Reporting by Marcela Ayres; Editing by Mark Porter and Paul Simao)