BRASILIA (Reuters) -Brazil’s central bank believes rate cuts from June 2023 would be compatible with bringing inflation in line with its target in 2024 based on market forecasts, the bank’s director of international affairs, Fernanda Guardado, said on Thursday.
However, she warned at an event promoted by UBS Brasil that uncertainties have reduced confidence regarding longer-term inflation projections, adding that policymakers are not yet thinking about lowering interest rates.
“I want to reinforce that it is not our focus now (to discuss the) timing of rate cuts. We are observing if this disinflation process unfolds in the way that we project, there are several risks in this path,” said Guardado.
According to the director, the central bank calculates that inflation in 12 months will be around the 3% official target in the second quarter of 2024, ending that year around this level.
Consumer prices in Latin America’s largest economy rose 6.47% in the 12 months through October, according to official data on Thursday.
Policymakers see disinflation ahead as the lagged effects of an aggressive monetary tightening cycle weigh more heavily on activity.
These effects began to be seen in the deterioration of banks’ credit portfolio, said the central bank economic policy director, Diogo Guillen, at an event hosted by Itau Asset Management on Thursday.
In October, the central bank held interest rates at a 13.75% cycle-high for the second straight policy decision. Policymakers paused the tightening cycle in September after 12 hikes lifted rates from a 2% record low in March 2021.
Guillen also stated that rate hikes in other countries should impact the Brazilian exchange rate in the short term but are deflationary for the country in the medium term.
(Reporting by Isabel Versiani and Marcela AyresEditing by Tomasz Janowski)
