MercoPress. South Atlantic News Agency

Tombini says Brazil is in the middle of a monetary tightening cycle

Central bank president Alexandre Tombini

Brazil is in the middle of a monetary tightening cycle, central bank President Alexandre Tombini said on Friday, days before the bank is expected to announce a hike in the benchmark lending rate.

“We have a situation now where we are still addressing the issue of the emergence of inflation,” Tombini said. “We are addressing monetary stability; we are in the middle of a tightening cycle in Brazil.”

Speaking at an event in Washington, he also warned that capital inflows are inflationary and can affect financial stability.

The monetary policy authority is expected to raise the Selic rate by 50 basis points to 12.25% next week from 11.75% currently, according to private analysts’ estimates.

Policymakers are trying to get inflation, which is currently hovering above 6%, closer to the center of its target of 4.5%, plus or minus 2 percentage points.

Brazil has been the target of massive capital inflows, which emerging markets have blamed on ultra-easy monetary policy in advanced economies, and this has put pressure on its currency.

Despite aggressive intervention in foreign exchange markets, the real is hovering around its highest level against the US dollar in two and a half years, in the range of 1.56/1.58 Real.

Brazil’s central bank monetary policy committee is scheduled to meet April 19/20.