Brazil’s Economic Policy Update

BRASILIA (Reuters) – Brazil’s central bank’s director of economic policy, Diogo Guillen, stated at a UBS event on Thursday that policymakers have noted stronger economic growth since the last interest rate-setting meeting. The trends they monitored have shown persistence.

Guillen observed that the exchange rate is currently “a bit higher” than in July, while inflation expectations remain broadly unchanged, which causes discomfort for the central bank.

Recent data from Brazil’s statistics agency indicated stronger-than-expected economic activity in the second quarter, reinforcing market expectations that the central bank will raise rates in its upcoming meeting on Sept. 17-18. Currently, Brazil’s benchmark interest rate has been steady at 10.50% since June.

After comments from central bank chief Roberto Campos Neto about potential gradual adjustments in borrowing costs, Guillen highlighted that minutes from the last meeting reflected discussions on maintaining rates unchanged for an extended period while indicating readiness to raise them if necessary. He described this as a strong sign that any forthcoming rate increases would be gradual.

Guillen stressed that the central bank’s credibility hinges on taking necessary actions to reach the 3% inflation target, emphasizing that the decision to adjust the cycle depends on economic conditions. He highlighted the importance of collective commitment to achieving this target and noted cohesion within the rate-setting board (Copom) regarding their economic assessments amid external uncertainties and global growth slowdown.