By Marcela Ayres
BRASILIA, June 25 (Reuters) – Brazil’s central bank pushed back on Thursday against market perceptions that it had extended its monetary policy horizon, after its latest rate decision steepened the yield curve.
After cutting rates by 25 basis points for a third straight meeting to 14.25%, the bank said bringing inflation to target within its relevant horizon of end-2027 would push it below the 3% goal in the first quarter of 2028, which will become the reference horizon for its upcoming August meeting.
Markets interpreted the message as a stretching of the horizon to justify the easing stance despite a more challenging inflation backdrop. The bank itself flagged risks from the Middle East conflict and a stronger economy amid stimulus measures by President Luiz Inacio Lula da Silva’s government.
Speaking at a press conference, interim economic policy director Paulo Picchetti said the reference to early 2028 was meant to clarify the nature of the shock affecting annual inflation in the fourth quarter of 2027, estimated at 3.7%.
New central bank projections released on Thursday showed consumer prices hovering around 3.1% to 3.2% in all quarters of 2028, which Picchetti said indicates “the bruise fading.”
“Even if we doubled or tripled interest rates, that would not reopen the Strait of Hormuz or offset El Niño effects,” he said.
“We are not extending the relevant horizon, and we do not intend to do so,” he added.
Central bank governor Gabriel Galipolo said at the same press conference that there was “noise” and “misunderstanding” around communication of the latest policy decision, which he attributed to an attempt by policymakers to explain too much in a limited space.
According to Galipolo, the changes introduced in the policy statement do not signal a shift in monetary policy.
Director Picchetti said the total easing in the current rate-cutting cycle will depend on incoming data, stressing policymakers see no value in committing to explicit forward guidance at this stage, as it would reduce their flexibility.
(Reporting by Marcela Ayres; Editing by Sanjeev Miglani)
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