Summary
Brazil's central bank will not permit an increase in inflation expectations to crystallise into sustained higher inflation, the bank's monetary policy director said at a Sao Paulo event. He emphasised the central bank's capacity, legal obligation and available instruments to pursue the 3% inflation goal through 2028.
Speaking in Sao Paulo at an event hosted by Banco Pine, the monetary policy director delivered a firm message on the bank's stance toward price pressures. He described market moves that place higher inflation expectations in 2028 as reflecting worries that the central bank may lack either the willingness or the ability to achieve its 3% inflation objective.
The director characterised the tone of his remarks as hawkish and directly addressed recent shifts in market sentiment. He said supply-side shocks originating from the Iran war should be contained to shorter projection horizons rather than altering longer-term inflation fundamentals.
"But the central bank has the tools," he said. "It will pursue the target, it has the capacity and it has a legal obligation to do so." He reiterated that the institution can act to prevent an erosion of disinflationary dynamics that would push inflation above target over time.
Officials pointed to a weekly central bank survey of economists that shows inflation expectations of 5.04% for this year, 4.01% for 2027 and 3.65% for 2028. The director emphasised that "everything can still be done regarding inflation in 2028," underscoring the institution's view that policy options remain available to steer inflation back toward the target.
On interest rates, the director noted that recent reductions do not imply a dovish policy turn. Policymakers cut the benchmark Selic rate by 25 basis points at each of the last two meetings, bringing it to 14.5%. Markets are pricing in additional easing, but the director warned that there is now less room for further cuts than there had been prior to the Middle East conflict.
He acknowledged uncertainty about precisely how much policy space has been consumed by recent shocks, saying it is unclear how much of that room has been eroded while conceding that some buffer has already been used. He added that policymakers will not permit inflationary impacts from the conflict to extend beyond the central bank's monetary policy horizon, which currently runs through December 2027 and will move into the first quarter of 2028 in the second half of the year.
Implications
The comments underline the central bank's intent to use available tools to defend its inflation target and signal that recent rate reductions should not be read as abandonment of that objective.