BRASILIA (Reuters) -Brazil’s central bank flagged interest rate cuts of 50 basis points for each of the next two meetings and does not see any gains in indicating future steps beyond that, the bank’s chief Roberto Campo Neto said on Tuesday.
Speaking at an event hosted by Bradesco Asset Management, he said policymakers would use these upcoming policy meetings, in December and January, to assess multiple variables, including progress in Congress on measures to stabilize the country’s public finances.
“We understand that signaling much more than this has no expected value given so much uncertainty that exists, both globally and locally,” he said.
He reiterated the central bank’s commitment to a restrictive terminal interest rate within the easing cycle.
Additionally, he pointed out that Brazil still maintains a substantial interest rate differential compared to advanced economies, allowing room for maneuver in monetary policy decisions.
However, Campos Neto cautioned that the liquidity environment will dry up, which is why the country needs to do its “homework” and have its fiscal situation in order.
Following President Luiz Inacio Lula da Silva’s remarks that his government did not need to erase its primary budget deficit next year, as previously proposed to Congress under new fiscal rules, Campos Neto said that increased fiscal risks could impact the central bank’s decision-making process, but not mechanically.
In the minutes of its latest policy decision, when the bank reduced the benchmark interest rate by 50 basis points for the third consecutive time to 12.25%, policymakers said there remains a substantial journey ahead to bring inflation back to the official target, stressing they had ignited a wide-ranging discussion on the increasingly challenging external scenario.
(Reporting by Marcela Ayres, Editing by Louise Heavens and Steven Grattan)