EcoViews

Brazil’s Tombini Sees Central Bank
Ready For Exchange Rates Volatility

‘Inflation has been more resilient than we’d have liked it,’ Brazilian Central Bank President Alexandre Tombini said Monday in New York, adding that the goal of foreign exchange policy is to ‘mitigate excess volatility’ and act when there are market disruptions.
In a presentation to the Brazilian American Chamber of Commerce and the Council of the Americas, he underlined the view that a flexible exchange rate is the ‘first line of defense’ against market shocks, but the bank will provide liquidity ‘in case of market disruption.’
Tombini also said the inflation target policy has served the country well, while acknowledging that ‘inflation has been more resilient than we’d like it to be.’
At the two-year mark of his tenure at Brazil’s central bank, Tombini is faced with a spike in the 12-month inflation rate, which has increased above 6% in recent months, as well as disappointing growth in the last two years. But despite the latest economic data, including a less-than-expected slowdown of inflation in February, he has not signaled that the bank will raise its 7.25% Selic interest rate.
Analysts say the bank may try to weather the adverse momentum with a few supplementary measures, and a rate hike is not expected until later this year. The next monetary policy meeting is March 6.
Tombini cited a recent U.N. study placing Brazil in third place as a recipient of foreign direct investment, and said the country has ‘learned to operate in this environment’ of heavy capital inflows, by introducing a number of regulatory reforms designed to prevent volatility.
Brazil’s 4.5% inflation target has a two-point margin of tolerance, so even with the increase, the central bank is within the margin.
Tombini noted improvements in other economic indicators, such as business confidence, declining unemployment rates, and real wage increases, as justification for focusing on inflation rather than boosting growth.
The event is part of Brazil’s strategy to calm financial markets while it pushes its ambitious agenda of development and financing of large infrastructure projects, both depending on the willingness and participation of international investors. Finance Minister Guido Mantega is also in New York this week.
The program of investments, which is open to investors in a partnership basis with the government, is estimated at $200 billion. It includes highway and railway projects, a high-speed line between Rio de Janeiro and Sao Paulo, port and airport improvement works, and participation in exploration of new oil fields, and well as construction for the World Cup next year and the Olympic Games in 2016.

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2 thoughts on “EcoViews

  1. Todd says:

    Nice to see you yesterday,

    Like

  2. eremophila says:

    Surely any city that has hosted the Olympic games, has always ended up in the red over it?
    Where’s the story about hospitals,and improved health/dental services? Yeah, I’m cynical…..

    Like

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