Brazil’s central bank focused on reducing the risk premium linked to monetary policy uncertainty By Reuters

By Marcela Ayres

BRASILIA (Reuters) – Brazil’s central bank is committed to reducing the risk premium associated with monetary policy uncertainties, its head Roberto Campos Neto said on Friday, as it sets the stage for an imminent leadership transition.

“The premium associated with that has gone down a little bit,” he said during an event hosted by Barclays. “It’s a game of credibility, we have to keep showing consistency.”

Campos Neto, whose term ends in December, stressed that all of the bank’s board members were sending the same message: the central bank is dependent on data and will not provide any guidance on future steps, but will do whatever is necessary to bring inflation to target.

“If hiking rates is necessary, we will do it,” he said. “People now understand that regardless of who is in charge of the central bank or who the directors are, the direction is set.”

In recent weeks, monetary policy director Gabriel Galipolo has led several dovish remarks that have helped strengthen the Brazilian real following a spiral of depreciation against the US dollar.

Sources told Reuters that Brazilian President Luiz Inacio Lula da Silva would soon nominate him to succeed Campos Neto. Lula said on Friday that he was not sure if Galipolo would be his choice for the position.

Galipolo pointed out that, in his view, the balance of inflationary risks is now asymmetric, tilted upwards.

In the minutes of its latest interest rate decision, in which borrowing costs were held constant at 10.5% for the second time in a row, the central bank revealed that its board members now see more upside risks than downside of inflation, although there was no consensus on whether the balance is asymmetric.

Asked about his personal opinion, Campos Neto said he could not answer the question, noting that not all members’ opinions are publicly disclosed.

He said future inflation numbers should be lower after the 12-month reading showed a rise to 4.5 percent in July, noting that economic activity continued to surprise policymakers on the upside.