(Bloomberg) -- Brazil’s central bank chief is concerned with above-target inflation expectations for next year but cautioned against hurting growth prospects by raising interest rates too fast. 

Roberto Campos Neto said policy makers should be mindful that economic models in a post-pandemic world have limitations and may fail to accurately capture the lagged impact of monetary policy on prices. At the same time, they need to make sure inflation expectations don’t rise above target, which could lead to loss of credibility in the bank’s work and further fuel inflation. 

“The objective is to not make any of those mistakes,” he said in an online event organized by Bank of America Corp. “In a country with a vivid memory of inflation, it’s very important to make sure deanchoring of inflation expectations does not start a repricing in the economy such as to create higher inertia that could be avoided by being more proactive.”

Swap rates on the contract due in January 2023, which signal investors bets on the Selic at end-2022, fell about 16 basis points in afternoon trading. 

Brazil’s central bank has been the most aggressive in the world this year, increasing its benchmark Selic by 575 basis points since March to 7.75% and signaling that another 150 basis-point hike is on tap for next month. Yet inflation expectations remain above target through 2024. Forecasts for next year stand near the ceiling of the 3.5% goal, which includes a tolerance margin of 1.5 percentage points.

Campos Neto stopped short of repeating the bank’s guidance about another 150 basis-point hike December, and didn’t say whether it will be possible to bring inflation to target next year. 

“I can only say it will be subject of our conversation in the next meeting,” he said, adding that policy makers have been stressing that their goal is to bring inflation to target. “We are looking at all variables understanding what’s happening locally and globally and how this dissemination process is happening.” 


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