MercoPress. South Atlantic News Agency

Brazilian central bank prepares to withdraw stimulus measures and liquidity

Henrique Meirelles, the orthodox central bank president

The Brazilian Central bank’s decision to raise reserve requirements this week will have an impact on monetary policy, admitted the bank’s governor Henrique Meirelles in an interview with the financial publication Valor Economico.

“The reserve requirement decision contemplated liquidity issues,” Valor quoted Meirelles as saying. “There is no doubt, however, that it has monetary policy effects.”

When asked if the presidential elections in October may prevent the central bank from raising interest rates, Meirelles said the monetary authority took “politically inadequate decisions several times in the past.”

“We don’t make decisions that we consider premature just to show we don’t suffer political influence” said Meirelles to Valor.

Brazilian banks will have to deposit an additional 71 billion Real (39 billion USD) at the central bank, policy makers said earlier this week after announcing it would begin unwinding anti- crisis stimulus measures in March.

“Acting in a consistent manner means not avoiding discussions that are technically justified, which in the short-term could seem unfriendly or unpopular, but that aim towards a common good” insisted Meirelles “As such, those who expect changes in the central bank’s conduct as a function of the electoral calendar are mistaken.”

Meirelles also reiterated his previously stated position that the central bank communicates via official statements and documents, such as monetary-policy meeting minutes and quarterly inflation reports.

Meirelles made the comments in response to recent press and analyst reports suggesting that the central bank acted to raise reserve requirements this week in an effort to postpone the need for interest-rate increases at its upcoming meetings.

Brazil’s central bank has held the country’s reference Selic interest rate at an all-time low of 8.75% annually since September. Brazil’s consumer price inflation through mid-February surpassed the country’s 4.5% annual inflation target, and recent central bank market surveys indicate the monetary authority could raise the Selic rate to as high as 11.25% this year in an effort to head off rising prices.

The central bank monetary policy committee is next scheduled to review the Selic rate at a two-day meeting on March 16-17.