Key insights
- The Brazilian central bank is worried about inflation expectations drifting above its 3% target, especially for 2028, signaling a lack of confidence in inflation convergence. The bank will maintain a restrictive monetary policy until it's confident inflation is heading towards the target. This could lead to slower growth in Brazil, indirectly impacting global markets.
Investing.com -- Brazil’s central bank monetary policy director Nilton David said Tuesday the bank is concerned about inflation expectations moving away from its 3% target, particularly for 2028, a timeframe expected to be less affected by current economic shocks.
David spoke at an event hosted by Santander, stating that the economy is no longer expanding above potential and policymakers will maintain monetary policy in restrictive territory until they gain confidence that inflation is moving toward the goal.
"We are keeping monetary policy under contractionary conditions until we are convinced that inflation is heading towards target," David said. He added that at the end of the calibration process, the bank will remain in a contractionary monetary policy stance.
The central bank director noted that monetary policy is working, as the economy is not growing above potential as it was previously.
"Inflation expectations trouble us the most, especially 2028," David said. He explained that 2028 inflation expectations suggest the market is not believing in inflation convergence toward the official target.
David emphasized the central bank’s measured approach to policy decisions. "We want to have serenity, we don’t want to react to a single point of data," he said. "With serenity we are capable of not moving too fast."
The director also indicated flexibility in the bank’s approach, stating that if officials determine the output gap is not neutral, they will adjust their strategy accordingly.
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