Central Bank of Brazil will maintain rates until inflation is controlled
The Central Bank of Brazil indicated that it will maintain interest rates and called for "serenity and patience" until inflation is reduced
The Monetary Policy Committee of the Central Bank of Brazil has defended its intention to maintain interest rates at the current level of 13.75 % for as long as necessary to control prices, for which reason it has asked for “serenity and patience” until reduce inflation to its target.
The body has even opened up to the possibility of resuming the adjustment cycle if the drop in inflation does not advance as expected. “Taking into account the uncertainty of the scenarios, the Committee remains vigilant, evaluating whether the strategy of maintaining the rate for a prolonged period will be enough to ensure the convergence of inflation”, the minutes of the last meeting held last week and disclosed this Tuesday.
After said meeting, in which it was agreed to freeze the interest rate for the sixth consecutive time, inflation in Brazil is still “high”, which makes it “necessary” to act “cautiously” and maintain the figure at elevated levels.
In this way, the central bank defends itself against the criticisms made by the Brazilian Government, which in recent weeks has described as absurd, worrying or lacking any logic that the entity persists in the idea of 13.75 %. Contrary to this idea, the institution chaired by Roberto Campos Neto has pointed out that the environment is “challenging” and the disinflationary process may be slower than expected, with widespread inflation in the service sector.
One of the arguments used by different members of the Government, including by the country’s president, Lula da Silva, is that high rates go against job creation. In this sense, the central bank committee has concluded in its minutes that this decision implies “promoting full employment.”
Likewise, with regard to the effect that high rates may have on the performance of the banking sector (as has been seen in recent weeks with the fall of various banks in the United States), the bank maintains that the direct impact on the Brazil’s financial system is “limited” and does not see a dilemma in the conduct of monetary policy between its objective of controlling inflation and the objective of financial stability.
(Reference image source: Wance Paleri, Unsplash)
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