International
Brazil monetary policy ‘driven by inflation’
Brazil monetary policy ‘driven by inflation’
Reuters/Brasilia
Brazil’s monetary policy is aimed at curbing inflation and not easing currency volatility, a member of the government’s economic team told Reuters yesterday after a sharp sell-off of emerging market currencies raised fears of a potential crisis. |
Investors have been rattled by worries about the health of Brazil and other emerging economies that had been growing rapidly until recently.
Central banks from India to South Africa and Turkey have raised rates to contain the spillover.
“Brazil is at a much better position than others because we started to adjust our rates early and have high foreign reserve levels,” said the official, who asked for anonymity to speak freely.
The central bank, which has raised its benchmark Selic rate by 325 basis points since April, will continue to battle high inflation without shifting its focus to the fluctuations of the local currency, the official said.
He said rate increases in emerging nations were expected as the US reduces the monetary stimulus that flooded those economies with foreign capital.
Brazil’s real and other emerging market currencies were back under pressure yesterday as expectations the US Federal Reserve will press on with stimulus cuts later in the day reheated doubts over developing markets’ appeal for investors.
The real weakened nearly 0.4% to 2.43 per dollar yesterday afternoon.
The official said the market may be pushing the real too low and that could bring in sellers and halt the depreciation.
The source did not say if the central bank could increase forex interventions to ease the real’s depreciation.
“My vision is not pessimistic. In the short to medium term the outlook will remain challenging. But if the recovery in the US and Europe materialises then I believe the situation will normalise,” the official said.
Meanwhile, Treasury chief Arno Augustin yesterday said the Brazilian government could issue global debt in the coming months despite market volatility stemming from a currency sell-off in emerging economies.
He said the government plans to diversify the currencies of future debt issues, which could include the euro. In the past few years, Brazil foreign debt sales have been denominated in US dollars and the local real currency.