June 25, 2020 / 4:51 PM / 9 days ago

UPDATE 1-Brazil's Campos Neto says central bank has not abandoned inflation goals

(Adds detail, quote)

By Jamie McGeever

BRASILIA, June 25 (Reuters) - Brazil’s central bank has not abandoned its inflation goals and is not analyzing them differently, despite inflation on course to run significantly below target this year and next, bank president Roberto Campos Neto said on Thursday.

In a virtual news conference following the release of its quarterly inflation report, Campos Neto also said the bank’s new forecast of a 6.4% fall in gross domestic product this year is too pessimistic, in part thanks to the various support programs put in place to cushion the economic blow from the coronavirus.

Asked whether policymakers’ commitment to their inflation goals had eased so as not to push interest rates much lower toward the so-called “lower bound,” Campos Neto replied “not at all.”

Monetary policy is stimulative, the full effects of record low rates have yet to be felt, and there is still room to cut rates further, he said.

“What is more important, the lower bound or inflation? The answer is we will not abandon inflation (targets),” he said.

“There is still room to use monetary policy, we have a lag effect, so in no way are we abandoning inflation or the 2021 target to look at 2022,” he said.

The bank’s inflation targets for this year, next year and 2022 are 4.0%, 3.75% and 3.5%, respectively. According to the bank’s various scenarios, inflation will be between 1.9% and 2.4% this year, between 3.0% and 3.2% next year, and on target in 2022.

Campos Neto said the lower bound, where rate cuts turn counterproductive and raise concern over inflation or financial stability, is “very dynamic,” and that policymakers look at it from several angles based on a risk-reward perspective.

Campos Neto also said the balance of economic risks point to this year not being as bleak as the bank’s new forecast of a 6.4% contraction suggests.

Still, a “fear factor” related to the COVID-19 pandemic will hang over the economy into next year, he said. (Reporting by Jamie McGeever Editing by Chizu Nomiyama and Jonathan Oatis)

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