Brazil's Central Bank and Inflation Targets

BRASILIA (Reuters) – Brazil's incoming central bank chief Gabriel Galipolo stated that pursuing the 3% inflation target is non-negotiable, but that there are various paths to achieve this goal.

Speaking at an event hosted by Bradesco Asset Management, Galipolo, who is currently the central bank's director of monetary policy and will take over as governor in January, noted that recent data reflects the Brazilian economy's resilience.

He emphasized that the central bank will assess data on a meeting-by-meeting basis, without offering guidance or mechanically reacting to variables.

The central bank accelerated monetary tightening with a 50-basis-point interest rate hike last week, bringing rates to 11.25%. In the minutes of the decision, policymakers remarked that further deterioration in inflation expectations could extend the monetary tightening cycle.

Annual inflation in Brazil, the largest economy in Latin America, reached 4.76% in October. Despite the rate hike, economists have increased their inflation forecasts through 2026 due to stronger-than-expected economic activity, a tight labor market, and a weak currency.

The Brazilian real has recently depreciated due to local fiscal concerns and a stronger U.S. dollar following the presidential election. The market is awaiting fiscal measures to support the real and lower long-term interest rates. Galipolo acknowledged that changes often take longer than the market prefers but supports the 'pains of democracy.'

After the central bank sold all $4 billion offered in two dollar-denominated auctions with repurchase agreements on Wednesday, Galipolo mentioned that this intervention was related to year-end seasonality, which typically causes additional demand that can stress the exchange-rate coupon. "I think the action was well understood, well received, and served its purpose," he added.