06/28/2024 – 15:55
The Central Bank’s Director of Monetary Policy, Gabriel Galípolo, acknowledged this Friday, the 28th, that the level of the exchange rate is drawing the institution’s attention. The American currency is currently trading at its highest levels in two and a half years.
“Right now, the topic that has caught the BC’s attention is the exchange rate. The exchange rate has been quite detached from its peers, devaluing quickly. We have debated and observed the exchange rate and its impacts on the economy,” he said.
“A hot economy and a narrow gap suggest slower or more costly disinflation. And a high exchange rate also suggests slower or more costly disinflation,” he continued.
The BC director also stated that the job market is hot, but that the Bank does not see an obvious link with economic prices, that is, the movement of inflation. He noted that economists have been repeatedly surprised by economic growth.
‘We are always looking at the exchange rate transfer to inflation and expectations’
The director of Monetary Policy at Banco Centra said that the authority is always attentive to possible transfers of exchange rate devaluation to inflation or expectations. According to Galípolo, the behavior of the dollar against the real became a point of attention for the BC board.
“We are witnessing a scenario of rapid evolution in the devaluation of the real against the dollar, and we are always trying to make a comparison to see how much this worse performance, compared to peers, represents some additional sign of attention”, stated the director.
According to Galípolo, the “higher level” of the exchange rate suggests a slower or more costly disinflation in the country. And, according to the director, the debate at the Central Bank has recently turned to the behavior of the real, as it did to the external scenario, in the second half of last year, and to the unanchoring of expectations so far.
The director stressed, however, that the Central Bank does not work with an “exchange rate target”. “The floating exchange rate is there to absorb changes that may occur due to repricing, which may be caused by local idiosyncratic issues or foreign issues, and we will always be looking to see if there is any type of dysfunction in the exchange market”, he said.
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