Brazil’s Central Bank Focus on Risk Premium

By Marcela Ayres
BRASILIA (Reuters) – Brazil’s central bank aims to reduce the risk premium linked to monetary policy uncertainties, according to its head, Roberto Campos Neto, as he approaches his term’s end in December.

“The premium associated with that has decreased a little bit,” Campos Neto stated at a Barclays event. “It’s a game of credibility; we need to continue demonstrating coherence.”

He reiterated the bank’s data-dependent approach, stressing that no future guidance will be provided, but they will act decisively to meet inflation targets:

“If hiking rates is necessary, we will do it. People now understand that, regardless of who is in charge, the direction is set.”

Recently, monetary policy director Gabriel Galipolo has embraced a more hawkish stance, which has helped strengthen the Brazilian real against the U.S. dollar after a depreciation period.

Sources indicated that President Luiz Inacio Lula da Silva might soon nominate Galipolo to replace Campos Neto, although Lula stated he was uncertain about this decision.

Galipolo believes the balance of inflationary risks has shifted upward. The central bank’s recent minutes showed members acknowledging more upside risks to inflation while lacking consensus on the balance’s asymmetry.

Campos Neto noted that future inflation readings are expected to drop, despite a 12-month increase to 4.5% in July, attributing this to ongoing stronger-than-expected economic activity.