Brazil central banker urges serenity in assessing impact of higher oil prices

By Marcela Ayres

BRASILIA, March 5 (Reuters) – Brazil’s central bank monetary policy director Nilton David said on Thursday the institution would take a measured approach in assessing data after the ​U.S.-Israeli conflict with Iran drove oil prices higher, which ‌could fuel inflation.

“It is natural to assume that if oil prices rise, that has an inflationary characteristic. The question is: for how long?” he said at an event hosted by Goldman Sachs, urging policymakers to remain calm.

Brazil’s rate-setting committee ‌will ​meet on March 17-18 and had already ⁠signaled in January it ⁠would begin an easing cycle.

David said that guidance remains valid as part of a “calibration” process, but noted it was focused solely on next month’s meeting. “Obviously, events since then are factoring into our ​considerations,” he said.

In recent days, a sharp rise in oil prices driven by the conflict in the Middle East has split ⁠bets priced into the interest rate ⁠curve between an initial cut of 25 or 50 ​basis points. Previously, markets had overwhelmingly expected a larger reduction.

Policymakers paused ​an aggressive tightening cycle in July and have since kept ‌rates at 15%, the highest in nearly two decades, as they seek to bring inflation back to the 3% target. Consumer prices in the 12 months to mid-February rose 4.1%.

ELECTION VOLATILITY

David noted that ⁠Latin America’s largest economy is heading toward general elections in October, with greater market volatility expected through year-end – which he acknowledged reduces the effectiveness ⁠of monetary policy.

“This ‌extra layer of interest rates that we have ⁠at the moment will be quite useful during this ​period,” ‌he said.

David noted economic growth now appears to ​be running ⁠close to potential and welcomed the recent loss of momentum in inflation.

On the bank’s exchange rate policy, he said the monetary authority decided to scale back the rollover of FX swaps because it believed the previous volume was interfering with price formation.

(Reporting by Marcela Ayres; Editing ​by Gabriel Araujo)