- Senate voted 56 to 13 in favor of Goldfajn nomination
- Monetary policy, not currency best to anchor CPI: Goldfajn
Brazil’s Senate confirmed Ilan Goldfajn as the country’s next central bank chief, putting him in charge of controlling above-target inflation without exacerbating the worst recession in over a century.
Senators voted 56 to 13 in favor of the former chief economist at Itau Unibanco Holding SA. Goldfajn won’t participate in the rate decision on Wednesday during which economists expect the central bank to hold borrowing costs at 14.25 percent.
“The first central bank contribution is to maintain inflation at low and stable levels,” Goldfajn said earlier on Tuesday during his confirmation hearing before the Senate Economic Affairs Committee. “The economic literature has already rejected the fallacious dilemma between economic growth and controlling inflation at low levels.”
Goldfajn, 50, faces the challenge of controlling inflation that is running at more than twice its target even though Latin America’s largest economy heads for its second straight year of recession. The central bank has missed its objective for six consecutive years and inflation could exceed the ceiling of the target range in 2016.
At Itau Unibanco, Brazil’s largest private bank, Goldfajn in April forecast the benchmark rate would be cut to 12.25 percent this year. The majority of traders see rate cuts starting in July, while analysts surveyed by the central bank foresee monetary easing to start in September.
While consumer price increases have slowed this year, economists have boosted their estimates for 2016 inflation for the past three weeks, as the outlook on spending cuts remains uncertain.
Born in Israel, Goldfajn holds a doctorate in economics from the Massachusetts Institute of Technology and served as the central bank’s economic policy director from 2000 to 2003. He was nominated by Acting President Michel Temer in mid-May, following a Senate vote that suspended President Dilma Rousseff to face an impeachment trial.
Goldfajn said during the hearing that monetary policy, not the currency, should be used to anchor inflation. He also said the bank’s international reserves are an insurance policy for possible balance of payment shocks and that it was not the appropriate time to discuss an adequate level for those reserves.
The Brazilian real erased early losses and rallied 1.4 percent to close at 3.4423 per dollar, as Goldfajn’s comments fueled hopes that Temer’s newly-appointed economic team will be able to restore investor confidence in Latin America’s largest economy.
“We’re going through the worst recession of Brazil’s history, with rising unemployment and considerable fiscal challenges,” Goldfajn said. “But I fully trust that the internal scenario can be reversed”.