MercoPress. South Atlantic News Agency

Brazil central bank cautious as outside shocks and domestic political tension mount

In his first press conference as central bank chief, Roberto Campos Neto said that volatility and uncertainty have increased lately

Brazil’s central bank will take its time analyzing the economic impact from an increasing number of shocks from abroad and rising political tension at home that appear to be slowing the government’s reform process, its president said.

In his first press conference as central bank chief, Roberto Campos Neto also said that volatility and uncertainty have increased lately, but noted that the current global economic slowdown is not severe enough to threaten global liquidity.

Speaking after the central bank cut its 2019 economic growth forecast to 2.0 percent from 2.4 percent in its quarterly inflation report, Campos Neto said policymakers must look through short-term market, economic and political volatility when deciding policy.

“Regarding recent shocks, the main message is inflation risks are now symmetrical, down from asymmetrical (to the upside), so we need more time,” he told reporters, noting that this signals policymakers have no bias regarding their next move. 

Specifically, growth and inflationary pressures have weakened recently due to persistent slack in the Brazilian economy, a global slowdown, and rising uncertainty over domestic reforms, he added.

Campos Neto said he is confident the government’s signature plan to slash social security spending will be approved, but admitted that the political environment had deteriorated recently and market optimism has diminished.

This has slammed Brazilian markets, prompting the central bank to carry out a US$ 1 billion repurchase operation to relieve pressure on the Real. This is an “appropriate” step at the appropriate time, Campos Neto said, and does not represent a change in strategy.

Interest rate traders are almost fully discounting a central bank rate hike from the current record low 6.50% within the next year. Last week, they attached a 50-50 probability rates would be cut.