BRASILIA, Nov 6 (Reuters) - Brazil’s central bank should act swiftly to limit any price shocks that compromise its goal of bringing inflation back to the official target, bank director Tony Volpon said on Friday.
In a speech to investors in New York on Friday, Volpon said changes in asset prices and inflation expectations caused by concerns over fiscal policy will have a larger negative impact on inflation than the relief coming from a contracting economy.
The central bank vowed on Thursday to use all necessary means to lower inflation to the 4.5 percent center of its official target in 2017. It had previously said it hoped to hit that target in 2016.
Volpon said on Friday the bank decided to alter the time frame for reaching that goal because of rising inflation expectations and changes in asset prices that pressured prices.
The bank now has to assure markets it will meet its new goal, he said.
“I believe we have reached a point at which longer-run considerations call for a determined response on the part of monetary policy to any further shocks to relative prices.”
Inflation in Brazil has continued to climb despite an aggressive rate-hike cycle by the central bank which started last year and despite a rapidly contracting economy.
A growing rift between President Dilma Rousseff and her wide-ranging alliance in Congress is blocking fiscal austerity measures aimed at regaining the trust of investors.
The political stalemate has pushed down the Brazilian real currency, raising the price of imports.
Twelve-month inflation in Brazil climbed to just below 10 percent in October, its highest level since 2013.
The bank stopped raising rates in September to avoid further harm to an economy heading into its worst recession in 25 years, but warned it will remain vigilant.
Volpon said he believes the bank should assure inflation convergence to target as soon as possible.
“We should adopt a more precise guidance as to when we expect convergence to target to occur once we see sufficiently diminished uncertainty around the key exogenous variables that condition the inflation outlook,” he said. (Reporting by Alonso Soto; Editing by Matthew Lewis)