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By Jose Gomes Neto and Jamie McGeever
BRASILIA, Jan 24 (Reuters) - Brazil’s economy is at a stage that requires caution on monetary policy, central bank president Roberto Campos Neto said on Friday, adding that he is “comfortable” with the inflation outlook.
Speaking at an event hosted by XP Investimentos in Sao Paulo, Campos Neto said that he and his colleagues still believe there is a high degree of slack in the economy, and that policy remains stimulative.
Since Campos Neto assumed the presidency last year, the central bank slashed its benchmark Selic interest rate to a record low 4.5% via four consecutive 50-basis point reductions. While the bank’s next move is less certain, the door is still open for further easing, economists say.
In his first major speech this year on monetary policy, Campos Neto said that will continue to depend on the balance of risks and outlook for inflation.
The upward shock to inflation late last year from a surge in meat prices is expected to dissipate as quickly as it appeared, Campos Neto said. But he added that although implied inflation rates may be running below target at around 3.5%, it doesn’t mean policymakers are ignoring the bank’s official goals.
The bank’s 2020 inflation target is 4.00%, down from 4.25% last year. According to the central bank’s latest weekly ‘FOCUS’ survey of economists, inflation this year is forecast at 3.56%.
Addressing the real’s exchange rate, Campos Neto said recent moves have been “quite different” from those seen in the past. The real has weakened against the dollar in recent weeks despite signs economic growth is picking up and a decline in Brazilian risk premia.
The Bovespa stock market is at a record high, although that has been driven by domestic buying while foreign investors have mostly sat on the sidelines. That’s because stocks here may appear expensive relative to other markets, not because investors have a dim view of Brazil, he said.
“If we continue to do our homework, foreigners will return, and there won’t be any institutional flow towards the exit,” Campos Neto said. (Reporting by Jose Gomez and Jamie McGeever Editing by Chizu Nomiyama)