Brazil’s Campos Neto says controlling inflation trumps boosting growth

Brazil’s central bank is focused on keeping inflation under control, not targeting growth, even though the economic recovery has undershot expectations and risks remain to the downside, central bank chief Roberto Campos Neto said on Wednesday.

Speaking at a conference in New York, Campos Neto said he expects pension reform will be approved, and if it is done properly, Brazil’s currency, the real, will probably strengthen “not because we want to, but as a consequence.”

“The mission of the central bank is not to achieve growth, it’s to achieve inflation,” Campos Neto told an XP Investimentos conference on Brazil.

Annual inflation at 4.58% in March was well above forecasts and the highest in two years, figures on Wednesday showed.

“For us, the main job is to keep prices stable and expectations well anchored. We are not going to take a risk on that, but I understand there is a balancing act happening,” he said.

Campos Neto also said he expects Congress to pass social security reform, which the government hopes will save over 1 trillion reais ($261.23 billion) over the next decade, restore public finances and revive economic growth.

The fiscal challenges facing Brazil are threefold, he said: passing pension reform, capping public sector salaries, and reducing the interest rate burden on the country’s debt load.

If fiscal reforms are done “properly”, the real will likely strengthen as a result. But asked if this means the central bank will sell FX reserves to slow any currency appreciation, Campos Neto said policymakers will have to analyze the impact on reserves policy.

He also reiterated that the central bank has no target for the real, but said it monitors liquidity and market functioning. The central bank is working toward simplifying the foreign exchange market to make it easier and quicker for foreigners to transact in Brazil, and that the aim is to see the currency become fully convertible in time.


Source: Reuters