Brazil’s Central Bank director does not see stagflation scenario for Brazil

RIO DE JANEIRO, BRAZIL – Central Bank Economic Policy Director Fabio Kanczuk on Friday said he does not see a stagflation scenario in Brazil, which would combine an economic stagnation scenario with rising inflation.

“We are acting to bring inflation to the center of the inflation target over the relevant horizon,” he emphasized over an online event organized by Goldman Sachs.

Once again, Kanczuk rejected the thesis that Brazil would be entering “fiscal dominance”, which occurs when the Central Bank can no longer raise interest rates to tackle inflation. This would exacerbate the country’s fiscal imbalance.

“We are far from that,” the director repeated. “I’m not saying that it could never happen. But the Central Bank is focused on its mandate to control inflation, not on the fiscal one, which concerns other authorities. If inflation rises, we will raise interest rates,” he added.

He repeated that the monetary authority considers a neutral real interest rate of 3.00% in its basic scenario.

“That is what we have in mind for a complete normalization (of monetary policy). But what we have started now is a partial normalization, which should not reach that neutral rate. It is as we see it now, but it is not a commitment; we can go beyond or below depending on how things behave,” he concluded.

Source: Isto É Dinheiro