Brazil's Central Bank Chief's Remarks on Credit and Monetary Policy

(Reuters) – Brazil's central bank chief Roberto Campos Neto stated on Monday that the volume of subsidized credit in the country has not increased enough to impact monetary policy.

"It has increased, but not to the extent, as of now, that will change dramatically the neutral rate," he said, referring to the equilibrium rate that neither cools nor overheats the economy.

Speaking at an event hosted by Deutsche Bank in London, Campos Neto noted the significant rise of private debt securities benefiting from income tax exemptions, but emphasized they do not impact monetary policy as they remain sensitive to the benchmark interest rate.

Campos Neto asserted the necessity for Brazil to signal fiscal measures that could be viewed as a positive shock to mitigate premium risk in interest rate futures, which he noted are currently influenced by a lack of confidence in the sustainable management of public accounts.

The central bank governor remarked that while he was unaware of specific measures, their effects would not mechanically alter monetary policy. However, if perceived positively, they could influence the long-end of the yield curve, exchange rate, and inflation expectations.

"Those variables are important because they are part of our reaction function," he stated.

Finance Minister Fernando Haddad mentioned that President Luiz Inacio Lula da Silva's government would announce measures to control mandatory expenses following the municipal elections held on Sunday.

Campos Neto also highlighted that inflation figures in Brazil have been mixed, underscoring the need for policymakers to have time to analyze the data.