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BRASILIA, Nov 26 (Reuters) - Brazil’s currency looks to have stopped weakening and is now stabilizing, indicating the upward pressure on inflation from a persistently weak exchange rate this year will dissipate, Roberto Campos Neto, the central bank president, said on Thursday.
In an online interview with media outlet MyNews, Campos Neto said the central bank takes a longer-term view on inflation, and there is little to suggest longer-term price pressures have changed much or that inflation will overshoot the bank’s target next year.
“We see that the exchange rate has stopped (weakening), or it has been these levels for some time, so we think that this effect (on inflation) will soften,” Campos Neto said.
Brazil’s real has been among the world’s worst-performing currencies this year, falling almost 30% against the dollar due to record low interest rates and uncertainty surrounding the government’s fiscal stability.
This, along with rising food prices and strong consumer demand thanks to the government’s emergency aid payments, has pushed up inflation to the point where many economists now say the central bank will begin to raise interest rates earlier next year than they had previously thought.
The real fell as low as 6.00 per dollar earlier this year but has recovered, and is now testing a key technical level at its 200-day moving average.
Campos Neto said the central bank does not look at inflation on a daily basis, but takes a longer-term view.
“It’s not just the central bank that thinks longer-term inflation expectations are not rising. The market doesn’t think so either. It’s important to point this out,” he said.
The central bank’s official inflation goals for this year, next year and 2022 are 4.00%, 3.75% and 3.50%, respectively. According to the latest weekly central bank survey of economists, inflation will undershoot this year and next, and reach 3.50% in 2022.
But producer price inflation data on Thursday suggested the upward pressure remains strong, with factory gate prices in October rising at a monthly record 3.4% pace.
Reporting by Jamie McGeever and Marcela Ayres; Editing by Toby Chopra and Paul Simao