(Bloomberg) -- Brazil central bank director Gabriel Galipolo rebuffed investor criticism that the monetary authority has been forced into a corner to hike rates in September, emphasizing all options are on the table.
Galipolo, the monetary policy director who is widely expected to become the next central bank governor, has driven home the possibility that policymakers could begin increasing rates in a series of public speeches, prompting traders to bolster bets on borrowing cost hikes as soon as next month.
But he has also faced pushback from investors like Luis Stuhlberger, the CEO of Verde Asset Management, who said this week that Galipolo had gone “too far” and left the board little room to maneuver at its September meeting.
“I want to disagree with the interpretation that recent speeches, especially my own, have put the central bank in a corner regarding what to do,” Galipolo said at a Thursday event in Sao Paulo, adding that his comments are not meant to support either bets on higher borrowing costs or economist estimates that policymakers will hold rates steady this year.
Brazil’s real hit a session low in afternoon trading amid Galipolo’s comments, falling as much as 1.9% against the dollar.
Analysts saw the remarks as the latest attempt from central bankers, who said earlier this month that they would not hesitate to raise rates if necessary to combat a worsening inflation outlook, to scale back expectations that tightening is forthcoming. The institution’s governor, Roberto Campos Neto, earlier this week said he did not remember talking explicitly about raising rates, comments that traders read as dovish.
“He is trying to keep all options open, so hikes are not imminent, which is dovish,” Marco Oviedo, a senior fixed income strategist at the brokerage firm XP, said of Galipolo. “We had Campos Neto with some dovish remarks at the beginning of the week, and now this.”
Brazil’s central bank has held the benchmark Selic steady at 10.5% since pausing a nearly yearlong easing cycle in June.
Like Campos Neto, Galipolo reiterated that the monetary authority is data dependent and monitoring many pieces of information, adding that his comments that inflation risks are tilted to the upside do not constitute guidance. He also said that he is not endorsing trader expectations that show rate hikes starting in September.
Analysts earlier on Thursday interpreted similar comments from Diogo Guillen, the bank’s director of economic policy, as tilting toward the dovish side as well.
Central bankers have repeatedly said in public speeches that they will not give guidance on their next rate steps as they are not committed to any one option.
Annual inflation is near the top of the bank’s tolerance range while economic growth remains surprisingly strong, Galipolo said Thursday. But he also stressed that policymakers will keep a close eye on consumer price and activity prints set to be released before their rate-setting meeting next month.
“In 20 minutes of speech, Gabriel Galipolo was a dove, a hawk and neutral,” said Italo Abucater, the head of currency trading at Tullett Prebon Brazil. “They don’t know what they will do, but they try to ‘reassure’ in speeches that they are vigilant and will do what is necessary with the tools they have.”
--With assistance from Beatriz Reis and Felipe Saturnino.
(Updates with additional context and comments throughout.)
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