The depreciation of the real has been more moderate than that of other currencies and should have a limited impact on inflation, Brazil’s central bank President Alexandre Tombini said today.
“Our depreciation has been more moderate than some other countries,” Tombini said in an interview at a conference in Istanbul. “As far as pass-through to inflation, provided the exchange regime is flexible, as is the case in Brazil, so the pass-through should be limited.”
The country is prepared to handle the impact of a U.S. exit from easy monetary conditions due to strong international reserves and a financial sector that has low exposure to interest rate and foreign currency risks, Tombini told the conference. The real has lost 4.2 percent against the dollar this year and the central bank has increased its benchmark interest rate by 75 basis points since April.
The central bank’s board on May 29 unexpectedly accelerated the pace of interest-rate increases in a bid to tame inflation that has been forestalling economic recovery. Policy makers raised their benchmark Selic rate by 50 basis points to 8 percent, as expected by only 19 of 57 economists surveyed by Bloomberg. Thirty-eight analysts expected a second straight 25 basis-point increase.
Annual inflation in Latin America’s biggest economy accelerated for nine straight months through March to 6.59 percent, above the top of the central bank’s target range of 2.5 percent to 6.5 percent. In April, year-on-year inflation eased to 6.49 percent.
Inflation has helped undermine Brazil’s decade-long consumer-led boom as families struggle to pay off rising debt and higher prices erode purchasing power.
Gross domestic product expanded 0.55 percent in the first quarter, less than 0.9 percent median forecast in Bloomberg survey of 45 economists.
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