• Cited food costs, fiscal austerity measures as key variables
  • Also discussed signs of economic recovery, intervention in FX

Brazil’s central bank President Ilan Goldfajn signaled that reductions in the key interest rate will hinge on several variables that will help determine whether inflation can slow to the official target.

The variables include the persistence of food shocks on inflation, the impact of the economic slowdown on consumer prices and confidence that the government can win approval for fiscal austerity measures, he said Thursday at an event in Sao Paulo.

The central bank board "will evaluate the evolution of these factors together, as there’s no single factor on its own that will determine monetary policy decisions," according to his prepared remarks.

Investors are carefully watching Goldfajn for signs that he will reduce the benchmark interest rate in order to shore up a battered economy. Traders in the swaps market bet he will ease borrowing costs in the October meeting, which would be the first reduction since 2012.

Goldfajn also said Thursday that Brazil’s economy is showing signs of stabilizing, and that his board will do its part to increase confidence by working to control consumer price increases. Inflation in the month through mid-September slowed by nearly half from the previous month to 0.23 percent, though the annual rate remains almost double the official target of 4.5 percent.

The economist also touched on his decision to reduce daily interventions aimed at weakening the currency. While the central bank has tools to intervene in the market without affecting the overall trend for exchange rates, the room for such actions is narrowing as monetary conditions in the U.S. return to normal, he said.

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