BRASILIA (Reuters) -Brazil's central bank said that its inflation calculations are still consistent with its policy strategy, though risks remain high and require continuous monitoring and serenity, according to minutes from its latest policy meeting released on Tuesday.
With the message, the central bank indicates that with interest rates unchanged at a cycle high, it continues to see no comfort in mentioning monetary easing.
In the minutes of the meeting held Oct 25-26, when the rate-setting committee known as Copom kept the benchmark rate at 13.75%, policymakers said that their slight upward revisions for inflation reflect higher inflation of market prices in the short term and a small increase for administered prices.
"The Committee assesses that the projections remain at values consistent with the strategy of reaching a level around the target over the relevant horizon," which includes 2023 and 2024, said the central bank.
But after acknowledging that market projections for inflation remain worse for extended periods, policymakers stressed that "risks remain high, requiring continuous monitoring and serenity."
Alberto Ramos, chief Latin America economist with Goldman Sachs (NYSE:GS), estimated rate cuts to begin only in the second quarter or possibly the third quarter of 2023.
"In the near-term (next 4-6 months) the risk that the Selic may have to be driven even higher is low, but a conservative stance is warranted," he wrote in a note to clients, mentioning the robust labor market dynamics and lingering uncertainty around the fiscal stance in 2023.
The elected leftist president Luiz Inacio Lula da Silva, who takes office in January, has yet to detail his economic policy after vowing to abolish a constitutional spending cap.
In last week's policy decision, the central bank had already held its inflation outlook for this year unchanged at 5.8%, raising its forecast for next year to 4.8% from 4.6% last month, compared to a 3.25% target.
For 2024, the inflation forecast increased to 2.9%, from 2.8% last month, compared to a 3% target.
According to the latest Focus weekly survey, private economists project inflation at 5.6% this year, 4.9% in 2023 and 3.5% in 2024.