By Marcela Ayres
(Reuters) – Brazil’s central bank values strong economic activity for its monetary policy, said incoming governor Gabriel Galipolo. The government may raise its 2024 growth forecast again.
August data showed Brazil’s economy exceeded expectations, supporting monetary tightening efforts. Galipolo emphasized that economic strength is key for policymakers, impacting inflation and consumer prices, which are above the target.
Finance Minister Fernando Haddad mentioned the government may need to raise its growth prediction, previously adjusted to 3.2% due to strong consumption and a tight labor market.
Galipolo noted Brazil’s economy remains resilient compared to other nations. The bank started raising rates last month to 10.75% due to inflation risks tied to economic strength, with expectations for a 50 basis points hike in November.
Galipolo said inflation expectations are concerning and the bank will maintain high rates as needed to meet its 3% target. Haddad pointed out communication issues have contributed to these inflation expectations.
He criticized current real interest rates on public debt as “irrational” but believes expectations will improve with consistent government fiscal policies.
Galipolo also hinted at reducing fiscal stimulus cautiously and mentioned that Brazil’s currency is undervalued against the U.S. dollar, with interventions planned only if major liquidity issues arise.
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