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BRASILIA, Nov 26 (Reuters) – Brazil’s currency appears to have stopped weakening and is now stabilizing, suggesting the upward pressure on inflation from this year’s persistently weak exchange rate will disappear, Roberto Campos Neto, president of the central bank, said on Thursday. .
In an online interview with media outlet MyNews, Campos Neto said the central bank is taking a longer-term view on inflation, and there is little to suggest long-term price pressures have changed much or inflation will exceed the bank’s target next year.
“We see that the exchange rate has stopped (weakened), or has been at this level for some time, so we think this effect (on inflation) will weaken,” said Campos Neto.
The Brazilian real has become one of the worst performing currencies in the world this year, falling nearly 30% against the dollar due to record low interest rates and uncertainty surrounding the government’s fiscal stability.
This, along with rising food prices and strong consumer demand thanks to the government’s emergency aid payments, has pushed inflation to the point where many economists now say the central bank will start raising interest rates early next year than they previously expected.
The real fell as low as 6.00 per dollar earlier this year but has recovered, and is now testing a key technical level on the 200-day moving average.
Campos Neto said the central bank is not looking at daily inflation, but is taking a longer-term view.
“It’s not just the central bank that thinks long-term inflation expectations won’t increase. The market doesn’t think so either. It’s important to show this, “he said.
The central bank’s official inflation targets for this year, next year and 2022 are 4.00%, 3.75% and 3.50%, respectively. According to the central bank’s latest weekly survey of economists, inflation will fall this year and next year, reaching 3.50% by 2022.
But producer price inflation data on Thursday showed upward pressure remained strong, with factory gate prices in October rising at a record monthly 3.4%.
Reporting by Jamie McGeever and Marcela Ayres; Edited by Toby Chopra and Paul Simao