Brazil central bank warns on US tariffs, vows to anchor inflation expectations
BRASILIA (Reuters) -Brazil's central bank on Tuesday flagged caution over the impact of steeper U.S. trade tariffs, reaffirming its commitment to a policy stance aimed at lowering inflation expectations after signaling interest rates will remain on hold for long.
In the minutes from its latest policy meeting, where policymakers paused an aggressive tightening cycle that had increased the benchmark rate by 450 basis points to a near 20-year high of 15%, the bank said that the 50% U.S. levies on goods from Brazil could have "significant" effects on specific sectors.
The broader macroeconomic effects remain uncertain and will depend on the course of negotiations and market perceptions of risk, it said.
Policymakers emphasized they are closely monitoring potential effects on the real economy and financial markets, and reinforced the central bank's cautious stance in a scenario of heightened uncertainty.
They also noted that inflation expectations among many market participants remain above the official 3% target, with no significant changes in longer-term projections, even as implied inflation measures derived from financial assets have declined.
"The committee reaffirmed and renewed its commitment to reanchoring expectations and to conducting a monetary policy that supports such a movement," the minutes said.
The current scenario "prescribes a significantly contractionary monetary policy for a very prolonged period to ensure the convergence of inflation to the target," it added.
While acknowledging clearer signs of moderation in credit markets amid a high-interest rate environment, the central bank said the labor market remained resilient, and said it was "natural" to observe mixed signals at "turning points in the economic cycle."
Latin America's largest economy is evolving broadly in line with expectations, said the central bank, with slowing growth seen as necessary to widen the output gap and ensure inflation control.
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