Goldfajn Reinforces Pledge to Bring Brazil’s Inflation to Target

  • Central bank chief made 1st public speech since August meeting
  • Said 4.5 percent inflation goal is ‘ambitious but realistic’

Brazil’s inflation rate will converge toward the official target of 4.5 percent next year, as the government makes progress in its efforts to shore up fiscal accounts, central bank president Ilan Goldfajn said on Tuesday.

"Reaching the target next year is an ambitious but realistic objective," he said, in his first public remarks on monetary policy since the Aug. 30-31 interest-rate meeting. "We’re confident that Brazil’s inflation will converge toward the target in all the relevant horizons, especially to 4.5 percent in 2017."

Goldfajn kept the benchmark interest rate unchanged at 14.25 percent in his first two meetings as central bank chief, resisting pressure to cut and help pull Brazil out of a deep recession. He and the board signaled in the communique to the last gathering, as well as minutes to the meeting, that they can’t ease policy without greater confidence that they will reach the inflation target, which is almost half the current rate of 8.97 percent.

Interest-rate swaps on the contract maturing in October 2016 rose by less than one basis point to 14.14 percent during Goldfajn’s speech, as some traders increased bets he would refrain from monetary easing in the next meeting, scheduled for Oct. 18-19. Swaps with other maturities declined on Tuesday.

Speaking Spanish on a panel in Buenos Aires with Chilean counterpart Rodrigo Vergara and Federico Sturzenegger of Argentina, Goldfajn highlighted that Brazilian inflation expectations have dropped to 4.5 percent for 2018 and beyond. Yet they remain above target for next year at 5.1 percent, he said, citing the central bank’s weekly survey of analysts.

Goldfajn expressed optimism that Brazilian President Michel Temer’s administration can succeed in its efforts to contain spending and shore up the budget. The government has presented legislation to Congress to cap federal expenditures, and is expected to propose cuts to pension benefits.

“The government is on the right track after years of increases in public expenses, intervention and fiddling with controlled prices,” Goldfajn said in a panel discussion. “Adjustments and reforms are important for disinflation."