Brazil's central bank director says rates will be adjusted as needed after March

Reuters

21-02-2025

BRASILIA, Feb 21 (Reuters) - Brazil's central bank is convinced that monetary policy is more restrictive than normal given its guidance for an upcoming interest rate hike, and will adjust it as needed going forward, its monetary policy director, Nilton David, said on Friday.
After beginning a tightening cycle in September, the central bank of Latin America's largest economy has raised its benchmark Selic rate by 275 basis points to 13.25%, and signaled late last month that it would hike it again by 100 basis points in March.
"Whether it is sufficient or not, we will find out and adjust accordingly," David said at an event hosted by Bradesco BBI, adding that potential moves at the meeting in May are not currently under discussion.
David stressed that policymakers will not cut borrowing costs based on perceptions of slowing economic activity, but rather on a clear assessment of what is driving inflation.
He warned that the coming months will be challenging, as annual inflation readings are set to rise.
"Inflation will get worse before it gets better," he said, acknowledging that market inflation expectations - currently well above the central bank's official 3% target - are unlikely to improve quickly.
With the Brazilian real having gained more than 8% against the U.S. dollar since the start of the year, following a drop of more than 20% in 2024, David said the central bank cannot assume it will resolve its problems with just a few weeks of exchange rate adjustments.
He also pointed out that the central bank has no attachment to any specific exchange rate level or target.
David said economic activity is expected to cool down and that current monetary policy will move in that direction, but acknowledged that some economists perceive that, in response, incentives may be provided to boost the economy, counteracting the central bank's efforts.
However, he emphasized that the central bank cannot raise interest rates based on hypothetical outcomes.
"It doesn't seem like the most appropriate policy when you're already at restrictive interest rates," David said, echoing recent comments by central bank chief Gabriel Galipolo, who said policymakers could not act preemptively on an issue that has yet to materialize.