Brazil central bank signals no forward guidance despite improved external conditions
Recasts to add Campos Neto's remarks at BTG Pactual event
SAO PAULO, Aug 20 (Reuters) -Brazil's central bank chief said on Tuesday that the external scenario has improved but the policymakers' message remains the same as in the minutes of their last interest rate-setting decision, with no forward guidance provided.
"Since then, we've been communicating the same message: We've seen some stronger numbers domestically, and the external situation seems to be heading toward a better outcome despite recent volatility," Roberto Campos Neto said at an event hosted by BTG Pactual.
He said Brazil has been experiencing "significant volatility" in interest rate expectations, and that the task of policymakers is "not to focus too much on short-term noise or these pricing movements, but to think about the message they want to convey."
This message remains the same, he said, adding that the central bank is data-dependent and will "do whatever it needs to be done," including raising interest rates if necessary, to control inflation.
The central bank has held the benchmark rate in Latin America's largest economy at 10.50% since halting an easing cycle in June. Last month, policymakers said they would raise it if needed to bring inflation to their 3% target.
The hawkish tone led the interest rate curve to price in a 93% chance of a 25-basis-point rate hike in September, with a 7% chance of a larger 50-basis-point hike. Annual inflation in July hit 4.5%, the upper end of the bank's target range. BCBWATCH
On the other hand, private economists surveyed weekly by the central bank still believe the key Selic rate will be held at 10.50% until the end of the year.
Some institutions such as XP, BTG Pactual and ASA, however, have been reviewing their scenarios to suggest a rate hike cycle starting next month.
Earlier on Tuesday, in an interview published by newspaper O Globo, Campos Neto had already said that the monetary authority would raise rates if needed but vowed to remain "calm and cautious" at times of "great volatility."
He reiterated there is still divergence in the rate-setting committee about the balance of risks to inflation, as some members see it as "asymmetric" and tilted to the upside. "We will decide at the next meeting," Campos Neto said.
Reporting by Marcela Ayres and Gabriel Araujo; Editing by Chizu Nomiyama and Jonathan Oatis
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