Brazil’s central bank is under no obligation to raise interest rates, says Galipolo director By Reuters

By Marcela Ayres

(Reuters) – Brazil’s central bank’s monetary policy director Gabriel Galipolo disagrees with those who interpret his recent statements as suggesting the central bank is poised to raise interest rates, he said on Thursday.

Speaking at an event in Sao Paulo, he reiterated that policymakers are dependent on data and have all options on the table.

Galipolo said the market realized Brazil’s central bank had more leeway for its next monetary policy decision on September 17-18 after policymakers dispelled perceptions this month that raising interest rates might not be possible.

“A difficult position for the central bank is not to have to raise interest rates. The difficult position for the central bank is to deal with off-target inflation,” he said.

“Off-target inflation is an uncomfortable situation. Raising interest rates is a routine part of fulfilling the central bank’s role.”

Galipolo said his recent statements were unchanged from previous statements and were strictly in line with what the central bank had already made public.

His remarks echo recent communication efforts by members of the bank’s rate-setting committee to emphasize what was in the minutes of the most recent rate decision, when borrowing costs were kept at 10.5 percent after Galipolo was initially considered more demanding.

Earlier on Thursday, the bank’s head of economic policy, Diogo Guillen, stressed that the central bank’s risk balance should not be seen as guiding monetary policy.

In minutes, the central bank said this month that its board now sees more upside than downside risks to inflation, although there was no consensus on whether the balance is “asymmetric”.

Speaking at an event in Rio de Janeiro, Guillen said there was “an overemphasis on the balance of risks as a guiding tool”, adding that it should not be interpreted that way.

Galipolo, widely seen as the likely successor to Governor Roberto Campos Neto, whose term ends in December, stressed this month that he was among those who saw the balance of risks as lopsided.

Since that language is often seen as setting the stage for rate hikes, his comments fueled more bullish bets on a cycle of monetary tightening starting next month and continuing into early 2025.

Galipolo reiterated Thursday that it would be wrong to draw a correlation between an asymmetric risk balance and potential policy guidance.

Campos Neto refrained from revealing which group it belongs to in assessing the balance of risks in recent comments, which tempered more hawkish bets leading interest rate futures.