BRASILIA, Nov 5 (Reuters) - The Brazilian government’s declining presence in the country’s economy could have implications for future monetary policy transmission, some central bank policymakers said, according to minutes published on Tuesday.
“Some Copom members stressed that changes in the credit market and financial intermediation, such as the greater role played by non-earmarked credit and capital markets, may impact the transmission of monetary policy,” the minutes of last month’s meeting said.
Under far-right President Jair Bolsonaro, Brazil’s government has been trying to lessen its presence in the country’s economy, selling off state-owned assets, stoking private credit and passing a landmark pension reform. On Oct. 30, Brazil’s nine-person strong rate-setting committee, known as ‘Copom’, unanimously cut the central bank’s benchmark interest rate to a new all-time low of 5.00%, but signaled that further easing may be less aggressive than it has been in recent months, despite inflation running below target.
In a change from recent statements, the bank’s policymakers warned that the historically low level of rates could raise uncertainty and lift inflation within the time horizon for which the bank sets policy.
The minutes of the meeting showed that with rates at record lows, policymakers highlighted the lack of precedent for the current situation, flagging that macroeconomic variables could be highly sensitive to interest rate levels.
In its Oct. 30 decision, Copom said the benign outlook for inflation “should allow for an additional adjustment of equal magnitude” but warned that low rates could increase uncertainty about the transmission channels and “may raise the inflation trajectory over the relevant monetary policy horizon”. (Reporting by Marcela Ayres; Editing by Catherine Evans)