By Marcela Ayres
BRASILIA, May 28 (Reuters) - Brazil's central bank will not allow higher inflation expectations to translate into actual inflation, monetary policy director Nilton David said on Thursday, stressing policymakers have full scope to act on price pressures through 2028.
Speaking in Sao Paulo at an event hosted by Banco Pine, David struck a hawkish tone, saying rising market expectations for 2028 reflect concerns the bank may not be willing or able to meet its 3% inflation target.
He said
supply shocks stemming from the Iran war should affect only shorter projection horizons.
"But the central bank has the tools," David said. "It will pursue the target, it has the capacity and it has a legal obligation to do so."
A weekly central bank survey of economists shows inflation expectations at 5.04% for this year, 4.01% for 2027 and 3.65% for 2028.
"Everything can still be done regarding inflation in 2028," David said.
He added that recent interest rate cuts do not signal a dovish stance.
Policymakers have lowered rates by 25 basis points at each of their last two meetings, taking the benchmark Selic rate to 14.5%. Markets expect further easing, though with less room than before the conflict in the Middle East.
David said it is unclear how much of that room has been eroded, but acknowledged some buffer has been used up.
He added policymakers will not allow inflationary effects from the war to spill beyond the monetary policy horizon, which currently runs through December 2027 and will shift to the first quarter of 2028 in the second half of the year.
(Reporting by Marcela Ayres. Editing by Mark Potter)
