Brazil central banker says 'fine' with gradual U.S. rate hikes

BERKELEY, Calif. - 19 November 2017: Brazil’s central bank chief Ilan Goldfajn said he expects the U.S. Federal Reserve to continue to raise U.S. interest rates gradually, allowing the current relatively benign environment for the South American economy to continue.

If we continue to see things normalize in a gradual way I think that will be fine,” Goldfajn said on Saturday in an interview with Reuters at the close of a conference at the University of California, Berkeley.

He added that he expects Jerome Powell, nominated by President Donald Trump to succeed Janet Yellen as Fed Chair in February, to continue to raise rates gradually, “and that will be good for emerging markets.”

“If we see things … less gradual and more intense, either coming from fiscal or any other factor that brings inflation to be higher than expected, then it will be a more bumpy road ahead,” Goldfajn said. “But the central scenario is that it will be gradual.”

Brazil has been cutting its target interest rate to bolster growth after its worst recession on record. On Saturday, Goldfajn reiterated the central bank’s expectation that it will do so again next month.

With Brazilian inflation now expected to undershoot the central bank’s 4-percent target for the first time in years, financial conditions are “favorable,” he said.

Still Goldfajn, says now is not the time for rest. Completing pension reform in Brazil, he said, is “crucial.”

“I think pension reform will be done, it could be done this year, next year,” he said. “That will be very important to somehow shield from any unexpected turbulence....The stronger the better, and the sooner the better.”

Goldfajn was sanguine about a recent rise in power costs that have lifted Brazil’s consumer prices, saying that they are more than offset by the downward pressure on inflation from food prices.