BRASILIA, Sept 23 (Reuters) - Brazil's central bank monetary policy director Nilton David said on Wednesday that the best response to the current uncertainty was to pursue smooth and predictable interest rate moves.
Speaking at an event hosted by J. Safra, David said the way monetary policy has been conducted in Brazil is producing the intended effects, pointing to signs of moderation in inflation indicators tied to more cyclical components of the economy.
The central bank last week cut interest rates
by 25 basis points for a fifth straight meeting, to 13.75%, and kept its options open ahead of next month's presidential election, with polls showing a tight race between leftist President Luiz Inacio Lula da Silva and right-wing Senator Flavio Bolsonaro.
David compared the current environment to driving on a snow-covered road in dense fog.
"Your ability to see further ahead becomes severely limited," he said.
Following last week's decision, the central bank's weekly survey of more than 100 economists showed markets now expect another 25-basis-point rate cut this year.
David stressed repeatedly that the current cycle should be seen as fine-tuning rather than monetary easing, reiterating the bank's long-standing view that interest rates must remain in restrictive territory to bring inflation back to its 3% target.
Last week, policymakers forecast annual inflation of 5.2% this year, 3.9% in 2027 and 3.2% over the relevant 18-month policy horizon, which currently extends through the first quarter of 2028.
David also pushed back against the view that the central bank was looking through current supply shocks, arguing that such shocks carry both direct and indirect effects and that policymakers should have no tolerance for second-round impacts.
"The goal is to prevent a temporary inflation disturbance caused by a supply shock from becoming entrenched inflation," he said.
(Reporting by Marcela Ayres; Editing by Gabriel Araujo)
