(Reuters) -Brazil’s central bank monetary policy director Nilton David said on Thursday that policymakers believe interest rates should remain at 15% for a very prolonged period until they are convinced that economic data are converging to desired levels.
After August economic activity data came in weaker than expected, David told an event hosted by UBS BB in Washington that the bank is watching every piece of data but will not react to any single indicator, focusing instead on the aggregate picture.
He said current data remain broadly in line with policymakers’ expectations as they work to bring inflation down to the 3% target, a task that requires growth in Latin America’s largest economy to run within, not above, its potential.
“We believe we are tighter than in previous cycles,” David said. “And we want to remain such, so we can actually gather the data and see the lagging effects of (monetary tightening) on the economy,” he added.
David noted that “little things pile up,” indicating the economy is still expanding, but policymakers are now seeing signs that “some sectors are starting to tame a little bit.”
Amid uncertainty linked to next year’s general elections and the possibility of President Luiz Inacio Lula da Silva introducing demand-boosting measures in his quest for reelection, David said the central bank neither takes into consideration nor speculates about what is going to happen.
He added that such perceptions tend to be reflected in the central bank’s weekly survey of economists, which continues to show inflation expectations above target, something he partly attributed to fiscal concerns.
(Reporting by Marcela Ayres; Editing by Mark Porter)
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