The Head Of Brazil's Central Bank Says Current Market Conditions Allow For a Change In Monetary Policy

Campos Neto stated at an event hosted by IDV, an organization comprised of major retailers in the largest economy in Latin America, that long-term inflation expectations have begun to decline and the yield curve has dropped sharply, indicating that "the market is giving credibility to what is being done" by the central bank to reduce price pressures.

Campos Neto added that this circumstance "creates space for future monetary policy action" without elaborating on the timeline for such action.

The central bank has consistently cited rising long-term inflation expectations as justification for maintaining its benchmark interest rate at a cycle high of 13.75 percent since September, despite a decline in inflation.

This policy stance, according to President Luiz Inacio Lula da Silva, hinders economic development.

On June 21, the Brazilian central bank is scheduled to make its next monetary policy decision, which Campos Neto stated he could not predict.

Campos Neto stated on Monday that future interest rates have decreased by approximately three percentage points since the government introduced new fiscal rules in response to fears of unchecked public debt growth.

Additionally, he stated that the exchange rate is "moving in the right direction." This year, the Brazilian real has gained 8.4% against the U.S. currency.

Future conditions will permit us to operate with reduced interest rates, he stated.

Although he acknowledged that efforts to curb inflation are making progress, he cautioned that they should not be halted prematurely, as doing so could increase the cost of attaining disinflation in the future.

While a weekly central bank survey of private economists indicates that rate reduction will begin in September, yield curve prices indicate that they will begin in August.

Campos Neto predicted on Monday that June's inflation reading would likely be negative.

He predicted that this year's inflation would conclude between 4.5% and 5%, which was lower than what policymakers had anticipated. However, he noted that core inflation remains elevated.

This year's official inflation target is 3.25 percent.