Economy

Brazil’s Central Bank Emphasizes Long Journey to Achieve Inflation Target By Reuters

BRASILIA (Reuters) – Brazil’s central bank announced on Tuesday that there is still a considerable journey to achieve the official inflation target, highlighting ongoing discussions regarding the increasingly complex external environment.

According to the minutes from the recent meeting on October 31-November 1, when the bank reduced the benchmark interest rate by 50 basis points to 12.25%, the rate-setting committee unanimously acknowledged that the heightened uncertainty in the global landscape necessitates a cautious approach.

One committee member noted that this uncertain environment creates an asymmetric upward bias in the risk balance concerning inflation.

“Significant disinflationary progress has been made, consistent with the Committee’s expectations, but there remains substantial work to stabilize expectations and bring inflation back to the target,” the minutes stated.

In the previous week, policymakers highlighted the “adverse” external conditions facing emerging economies, while still anticipating additional cuts of the same magnitude in upcoming meetings.

During the discussion, the central bank examined the potential impacts of rising U.S. interest rates on the Brazilian economy, emphasizing effects on interest rates, forward premium in the interest rate curve, external demand, exchange rates, neutral interest rates, and commodity prices.

In the aftermath of the Israeli-Hamas conflict, the bank observed only moderate fluctuations in the exchange rate and oil prices, despite the severity of the situation and significant movements in international asset prices.

“In considering the various transmission channels within this more uncertain environment, the committee views a cautious stance as appropriate given the associated risks,” the minutes indicated.

Additionally, policymakers expressed heightened uncertainty regarding Brazil’s fiscal targets, which has led to an increased risk premium, underscoring the importance of diligently pursuing these goals.

President Luiz Inacio Lula da Silva recently stated that his government does not need to eliminate its primary budget deficit for the coming year, contrary to previous proposals made to Congress under new fiscal rules. This announcement elicited a negative response from local markets, raising concerns over the potential growth of the country’s public debt beyond initial expectations.

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