May 24 (Reuters) - Brazil's central bank chief Roberto Campos Neto said on Friday that increased inflation expectations have been "quite bad news" for the central bank.
Speaking at an event hosted by FGV, he mentioned several factors account for the deviation of inflation expectations from the official 3% target, including fiscal policy, external factors, and doubts regarding the central bank's credibility.
In the central bank's latest weekly survey with private economists, expectations for 2025, the year policymakers take into account for their policy actions, rose for the third consecutive week to 3.74%.
"Inflation expectations have been quite bad news for the central bank," said Campos Neto. "We've seen inflation expectations rising significantly, 2025 (inflation expectation) will also impact the longer-term ones."
When policymakers cut interest rates by 25 basis points earlier this month, to 10.50%, after six reductions twice that size, they stressed that unanchored expectations were among the factors hindering the signaling of future steps ahead.
Since then,
public statements
from monetary authorities seen as hawkish have increased bets on a potential pause to the easing cycle at the next policy meeting in June.
Following catastrophic floods in the southernmost state of Rio Grande do Sul, which left a trail of destruction, caused 163 deaths, and displaced over 580,000 people, Campos Neto said that food prices in Brazil may increase slightly this year as a consequence of the events, affecting the headline reading.
He also mentioned having heard different estimates regarding the cost of rebuilding the state, ranging from 0.2% to 2% of the gross domestic product (GDP).
Campos Neto added that the central bank's concern is how these developments will affect macroeconomic variables that are part of its reaction function. (Reporting by Marcela Ayres Editing by Chris Reese and Diane Craft)
