Brazil Exchange rate is a factor in rate decisions if it impacts inflation expectations, says cenbank chief



By Jamie McGeever and Gabriel Ponte

BRASILIA, June 24 (Reuters)The recent rise of the Brazilian real in foreign exchange markets will only be taken into account in future interest rate decisions if it affects inflation expectations, central bank president Roberto Campos Neto said Thursday.

In a virtual press conference following the release of the bank’s quarterly inflation report, Campos Neto said that currency floats, that it is just a variable in the inflation outlook and that the central bank is not making any predictions about its direction.

Asked whether the real’s nearly 20% rise since March could slow the pace of political tightening and possibly prevent the Selic rate from reaching its “neutral” level, Campos Neto said: “For us , the exchange rate is an input and what matters is … the exchange channel in inflation, in inflation expectations. “

The real continued its ascent on Thursday, hitting a one-year high of 4.92 per dollar BRBY. The rally coincided with the start of the central bank rate hike cycle that took the Selic to 4.25% today.

After being one of the world’s worst performing currencies against the dollar at the start of the year, the real is now up 5.5% against the greenback and is one of the best in the world.

Campos Neto said the move is largely the result of improved prospects on the fronts of domestic taxation, economic growth and economic reforms that have attracted foreign capital.

“Growth has been revised upwards, and the trajectory of gross debt has been revised for the better. In this movement to re-price global flows, Brazil has done better and that is why we have had entries larger ones that obviously had an impact on the exchange rate, “he said.

Campos Neto also said that the “neutral” real interest rate is currently estimated at around 3%. Using the central bank’s inflation target of 3.50% for 2022 as a base, this would imply a Selic rate of 6.50%.

Campos Neto said the central bank will use all the tools at its disposal to achieve this goal. Inflation is currently 8.1%.

(Report by Jamie McGeever and Gabriel Ponte edited by Frances Kerry)

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