Brazil's central bank stated on Tuesday that current monetary policy requires "serenity and patience," indicating that worsening inflation expectations justified its decision to maintain a hawkish stance towards future steps.
In the minutes of the meeting held between March. 21-22, when the rate-setting committee known as Copom kept the benchmark rate at 13.75%, the central bank noted that the Finance Ministry's commitment to implementing fiscal measures and the reinstatement of fuel taxes have reduced the upside risk on short-term inflation.
However, policymakers expressed concern about inflation expectations diverging from the targets in the longer term, indicating that this issue, together with the risk of a more abrupt reduction in domestic and global credit granting affecting economic activity, was central to their policy decision debate.
"The monetary policy conduct, at this moment, requires
serenity and patience to incorporate the inherent delays in the
inflation control through interest rates and, therefore, to
reach the goals in the relevant monetary policy horizon," it
said.
Policymakers reiterated that they would not hesitate to resume hikes if necessary when they
kept
the Selic rate at its highest level in six years last
Wednesday, despite intense pressure from the new government of
President Luiz Inacio Lula da Silva to reduce borrowing costs.
The decision triggered a
fresh wave of criticism from leftist Lula, frustrating part of the market expectation about the possibility of monetary easing ahead amid
cooling annual inflation, credit deceleration, economic slowdown, and banking turmoil abroad.
In the minutes, policymakers said that there is no mechanical relationship between the convergence of inflation and the presentation of an awaited fiscal framework by the government. Still, they stressed that a credible new rule "might result in a more benign disinflationary process through its effect on the expectations channel." (Reporting by Marcela Ayres; Editing by Steven Grattan)
