Brazil’s central bank warns against another rate hike

Brazil’s central bank sent an aggressive message to investors Monday, reminding them that a final rate hike is still on the table, even as most traders bet that the aggressive monetary tightening campaign ended at the last meeting.

“We have to send a tough message,” Roberto Campos Neto, the bank’s president, said at an event organized by local newspaper Valor Economico.

“The message remains that we will consider the need for a final rate hike in September,” he added.

Campos Neto added that the central bank is not yet considering a rate cut. “We are still thinking about finishing our work” to bring inflation back to target levels.

His message is likely to push swap rates higher Tuesday, especially since most traders had largely ruled out the likelihood of further monetary tightening after a campaign that has already raised borrowing costs by 11.75 percentage points since March 2021.

With the key Selic rate currently at 13.75%, economists are debating when rate cuts could begin as the central bank anticipates three straight months of deflation due to the large fuel tax cuts.

STILL CONCERNED

However, Campos Neto said that policymakers remain “vigilant” and “concerned” about key inflation components such as services and wages.

Stronger-than-expected growth in the second quarter underscores the strength of domestic demand.

Following Campos Neto’s strong message on inflation, investors will focus on comments from Monetary Policy Director Bruno Serra at a Bradesco Asset Management event on Tuesday morning.

Economists surveyed by the central bank this week revised their inflation estimates up for 2024 but lowered forecasts for this year and next.

Most still expect consumer prices to remain above target through 2024.