BRASILIA - Brazil's central bank will not provide forward guidance on the path of monetary policy while uncertainty tied to the Middle East conflict persists, Monetary Policy Director Nilton David said on Tuesday.
Speaking at an event hosted by Santander, David emphasized that the central bank has already moved to ease policy in two consecutive 25-basis-point steps, bringing the Selic rate to 14.50%. Despite those cuts, he said the bank intends to keep interest rates at restrictive levels until policymakers are confident inflation is moving toward the official 3% target.
Headline inflation in Latin America's largest economy has accelerated to 4.39% in the 12 months through April, David said, noting that the rise has occurred amid the U.S.-Israel war with Iran. He argued the conflict has created disruptions in energy markets and that the path back to previous price levels is uncertain.
"There is going to take some time for energy prices to come back, if they ever come back," David said. "The central bank is not going to attack any change in prices that may happen because of the conflict. But the central bank is not going to tolerate that it becomes inflation down the road."
David also highlighted a concern about inflation expectations drifting away from the target at the longer 2028 horizon, a gauge that is typically less affected by short-term shocks. He told the audience that the economy is no longer expanding above potential and that policymakers intend to preserve "serenity" while they take time to evaluate a broad range of incoming data, including credit conditions and developments in the labor market.
On foreign exchange policy, David framed recent central bank activity in currency markets as efforts to maintain orderly functioning after the real appreciated roughly 5% so far this year. He said those measures were aimed at preserving market regularity rather than managing the currency's level.
Referring to the bank's last full-scale intervention, David recalled action in 2024 when authorities stepped in heavily during a depreciation spiral driven by fiscal concerns. He reiterated that the central bank will act in FX markets if they become dysfunctional, but stressed that the real remains a free-floating currency and the bank does not intend to set its price.
Overall, David's remarks signaled a cautious stance: the bank has trimmed rates modestly but will refrain from committing to a forward path while external shocks - particularly to energy - and weakening expectations complicate the outlook.
Contextual note: The central bank's decision not to provide forward guidance reflects its assessment of ongoing geopolitical disruptions to energy prices and their potential pass-through to domestic inflation. Policymakers are monitoring a wide range of indicators before making further moves.