Brazil's central bank is watching longer-term inflation expectations closely after its monetary policy director, Nilton David, said the outlook for 2028 has moved away from the official 3% target. Speaking Tuesday at an event hosted by Santander, David stressed that the development is a key concern for policymakers.
David said the central bank will retain a restrictive policy stance until officials are confident inflation is converging toward the target. "We are keeping monetary policy under contractionary conditions until we are convinced that inflation is heading towards target," he said. He added that, at the conclusion of the calibration process, "the bank will remain in a contractionary monetary policy stance."
The director noted that the policy tightening appears to be having an effect on the pace of activity. According to David, "monetary policy is working, as the economy is not growing above potential as it was previously." That shift in the growth profile underpins the central bank's readiness to keep policy restrictive while watching inflation dynamics.
David identified expectations for 2028 as particularly troubling. "Inflation expectations trouble us the most, especially 2028," he said, explaining that those expectations imply the market is not convinced inflation will converge toward the official target.
At the same time, David emphasized the central bank's methodical approach to decision-making. "We want to have serenity, we don’t want to react to a single point of data," he said, and added that "With serenity we are capable of not moving too fast." He described the bank's stance as deliberate rather than reactive, with a focus on the evidence provided by incoming data.
David also signaled that the bank retains flexibility in its framework. If officials conclude that the output gap is not neutral, they will adjust their strategy accordingly, he said. That conditionality underscores that while the current posture is contractionary, future moves will be guided by evolving assessments of both inflation prospects and the stance of the economy.
Event: Remarks made at a Santander-hosted event on Tuesday.
Core message: Central bank will hold contractionary policy until convinced inflation is returning to the 3% target, with particular concern about 2028 expectations.