Brazil Central Bank Director Sounds Alarm on Inflation Outlook

The Central Bank of Brazil headquarters in Brasilia, Brazil Photo by Arthur Menescal /Photographer: Arthur Menescal/Bl

Article content

(Bloomberg) — Brazil central bank Monetary Policy Director Nilton David said rising 2028 inflation expectations are a growing concern for policymakers, highlighting fears that a global energy shock could pressure the long-term outlook.

Article content

“The central bank will not allow external shocks to turn into inflation beyond the relevant policy horizon,” David said on Thursday during an event. That horizon is currently the fourth quarter of 2027.

Article content

Article content

Article content

Brazil’s central bank is adopting an increasingly cautious tone after delivering two consecutive quarter-point interest rate cuts. Continued tensions in the Middle East have driven oil prices higher and forced analysts to lift inflation forecasts upward across emerging markets. That shift is raising doubts as to how much room there is for further easing in Latin America’s largest economy.

Article content

Article content

Brazil’s annual inflation sped up to 4.64% in early May, the national statistics agency reported on Wednesday. Consumer prices rose 0.62% on the month.

Article content

Going forward, inflation expectations for 2028 have continued to deteriorate — something that “jumps out” at policymakers, David said.

Article content

“While little or nothing more can be done for 2026, everything can still be done for 2028,” he said. “Monetary policy works, and the central bank has an obligation to pursue the 3% target.”

Article content

The comments come as financial conditions remain restrictive. Before starting its easing cycle in March, the central bank had held borrowing costs at a roughly two-decade high of 15% for several consecutive meetings amid persistent concerns over inflation expectations and fiscal uncertainty.

Article content

Article content

Following the latest rate cut in April, some economists warned that worsening external risks and the continued deterioration in consumer price estimates could prompt policymakers to pause the easing cycle altogether as soon as in June, keeping the benchmark Selic at 14.5%.

Article content

Central bank officials have repeatedly stressed that interest rates will remain restrictive for as long as necessary to ensure inflation slows and expectations become re-anchored.

Article content

“Lowering rates does not mean Brazil’s central bank is dovish,” David said. “Brazil’s central bank will maintain interest rates at contractionary levels for long enough to ensure inflation converges to the center of the target range.”

Article content