BRASILIA, Aug 11 (Reuters) – Brazil’s central bank said on Tuesday that tight monetary policy is increasingly weighing on economic activity, but inflation remains fueled by demand, underscoring the need to keep interest rates restrictive.
Minutes of the bank’s latest rate-setting meeting, which delivered a fourth straight 25-basis-point cut and lowered the Selic rate to 14.00%, showed policymakers took a more favorable view of both inflation and growth dynamics, while again refraining from offering any signal on the next steps of the easing cycle.
“The Committee will continue to incorporate new information and monitor developments in the scenario in order to keep monetary policy adequately restrictive to ensure convergence to the inflation target,” the minutes said.
Policymakers also stressed the need to monitor potential second-round inflation effects from supply shocks and act decisively if they emerge, streamlining earlier references to the inflationary impact of the U.S.-Israel conflict with Iran.
On economic activity, the central bank said recent indicators point to a deceleration in the transition from the first to the second quarter, widespread across both the supply and demand components of aggregate output, underscoring that a cooling economy is an essential part of bringing inflation back to its 3% target.
The minutes also acknowledged a slowdown in both headline inflation and measures of underlying inflation, a notable shift from June, when policymakers had highlighted accelerating price pressures.
Regarding the increase of longer-term market inflation expectations, an issue on which policymakers have long expressed concern, the committee said it was “closely monitoring” the recent deterioration and discussing its possible causes, without elaborating on the factors behind the movement.
“Perseverance, determination, and serenity in the conduct of monetary policy will contribute to the reanchoring of expectations, which is crucial for the convergence of inflation to the target at a lower cost,” the central bank wrote.
(Reporting by Marcela Ayres; Editing by Andrew Heavens and Chizu Nomiyama )
Comments