Brazil’s Central Bank Aims to Reduce Risk Premium Associated with Monetary Policy Uncertainty

By Marcela Ayres

BRASILIA (Reuters) – Brazil’s central bank is focused on reducing the risk premium tied to uncertainties regarding its monetary policy, according to its president, Roberto Campos Neto, who spoke on Friday as the bank prepares for an upcoming leadership transition.

“The premium associated with that has decreased somewhat,” Campos Neto stated during an event organized by Barclays. “It’s a matter of credibility; we must continue to demonstrate coherence.”

With his term set to end in December, Campos Neto stressed that all members of the central bank’s board share the same message: the institution remains data-driven and will not provide guidance on future actions, but it will do whatever necessary to meet its inflation targets.

“If raising rates is necessary, we will do it,” he affirmed. “People are beginning to realize that the direction remains consistent, irrespective of who leads the central bank or who the directors are.”

In recent weeks, Gabriel Galipolo, the monetary policy director, has made more hawkish statements, which have contributed to a strengthening of the Brazilian real after it faced depreciation against the U.S. dollar.

Sources indicated that Brazilian President Luiz Inacio Lula da Silva is expected to nominate Galipolo as Campos Neto’s successor, although Lula mentioned on Friday that he was uncertain about whether Galipolo would be the official choice.

Galipolo has pointed out that he sees the balance of inflationary risks as asymmetric, leaning toward the upside.

The minutes from the central bank’s latest rate decision, where borrowing costs were held steady at 10.5% for the second consecutive meeting, indicated that board members perceive more upside than downside risks to inflation; however, there was no consensus regarding whether the balance is indeed asymmetric.

When asked to share his personal views on the matter, Campos Neto stated that he could not respond, as not all board members’ opinions are made public.

He expressed optimism, suggesting that forthcoming inflation data should show lower figures, following a 12-month reading that increased to 4.5% in July, and noting that economic activity continues to exceed policymakers’ expectations.