Brazil Central Bank Head Says Inflation Needs to be Curbed

ilan-goldfajnIlan Goldfajn, the tough talking head of Brazil’s central bank, announced that while inflation had reduced slightly measures still had to be taken to curb it further. He said that the government understood the importance of meeting its inflation target for the coming year. The country’s twelve-month inflation is a persistently high 8.74 percent at present, and a number of strict measures undertaken by the government don’t seem to have made an impact on it.

Goldfajn, an economist and a teacher, is the current president of the Central Bank of Brazil. Sworn in very recently, on 9 June, he previously worked at the International Monetary Fund from 1996 to 1999. He was also the director of the Central Bank of Brazil for three years from 2000 to 2003.

Goldfajn said that policymakers were eager to see the place of disinflation to speed up in 2017 because there was a target range of around 3 percent to 6 percent which could be taken to be 4.5 percent. The bank had dropped its inflation forecast and this was echoed by the market’s forecasts as well. Policymakers were therefore eager to put a number of measures in place to reach the desired rate of inflation.

One of the first things Goldfajn did when he took the reins was to maintain the central bank’s Selic rate at a very high 14.25 percent even though there have been many calls for the rate to be dropped. The current rate is the highest in almost a decade and experts agree that such a tough stand is necessary to curb inflation. The central bank head did say that the monetary policy would be relaxed when inflation showed signs of reducing.

Goldfajn’s statement could be taken to mean that the central bank would keep interest rates at their already high levels for quite some time to come. He got the top job in June this year and many experts say that he is the right person to get the economy in order. It has to be pointed out that the central bank is facing a crisis of credibility because it has allowed inflation to spiral out of control for many years by following discredited policies of consumption based stimulus and very large public spending.

Economists are now anticipating that rate cuts will not happen before end 2016 or even the next year. There isn’t any expectation that the currency’s exchange rate would be manipulated to bring inflation under control. Goldfajn drove home the point that the central bank would only step in to ensure that the Real floats as freely as possible, and then too it will intervene very slightly. The Real had strengthened almost 30% versus the US Dollar recently, which sent a wave of panic among exporters.

Furthermore, he refused to change his stance on international reserves, saying its levels could be reviewed at a future point when the economy had recovered. At present, the country has reserves amounting to $377.4 billion. The central bank is also continuing with its policy of reducing its traditional currency swaps holdings at a steady pace. It now has $50 billion of them on its balance sheet, down from $150 billion last year. The Brazilian economy is vulnerable on account of ongoing political instability. However, Goldfajn’s cautions approach seems to be what the country requires at present since the conditions promoting its economic growth cannot be relied on to continue.

The Central Bank of Brazil was established on 31 December 1964. Like most central banks of other countries, this bank plays a vital role in the economic policy of Brazil. With a tough head like Goldfajn at the helm, the economic conditions of the country can become better.