U.S. interest rate scenario calls for humbleness from Brazil’s cenbank -director

BRASILIA (Reuters) – Brazil’s central bank monetary policy director said on Thursday that the current strength of the U.S. economy, demanding higher interest rates for longer, stands as a central theme nowadays, imposing the need for Brazilian policymakers to be humble.

Addressing an event hosted by GRI Club, Gabriel Galipolo expressed concern over the rise in longer-term U.S. Treasuries yields, noting that it typically signals turbulence for emerging economies.

He said that Brazil boasts robust foreign exchange reserves, which provide a protective buffer during volatile times, but stressed that the U.S. interest rate scenario is sparking discussions about interest rate differentials.

Galipolo acknowledged that this could affect the country, whose currency is traditionally susceptible to the actions of investors who borrow money in a currency with a low interest rate and invest it in assets or currencies with higher rates to profit from the interest rate differential.

“In this moment, it reflects how important it is for us to be humble,” he said.

The director emphasized that there is room to fine-tune Brazil’s monetary policy contraction while maintaining a restrictive stance. He said that the 50-basis-point rate cut pace is appropriate for that, allowing policymakers to closely monitor the economy’s response.

The central bank kicked off an easing cycle in August, ending nearly a year of rate stability aimed at combatting inflation.

In September, policymakers implemented another 50-basis-point reduction, bringing rates to 12.75% and flagging equal-sized cuts in upcoming meetings.

(Reporting by Marcela Ayres; Editing by Steven Grattan)