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Brazil's central bank warns of extended rate-hike cycle if inflation expectations worsen

BY Reuters | ECONOMIC | 11/12/24 06:14 AM EST

BRASILIA, Nov 12 (Reuters) - Brazil's central bank said on Tuesday that further deterioration in inflation expectations could extend the monetary tightening cycle, with its policy conduct remaining "a fundamental factor" in steering expectations back towards the 3% target.

In the minutes from the Nov. 5-6 meeting, when policymakers accelerated the tightening pace with a 50 basis-point hike that pushed rates to 11.25%, the central bank noted that recent concerns over rising public spending and the sustainability of the country's fiscal framework have significantly impacted asset prices and market expectations. (Reporting by Marcela Ayres, editing by Ed Osmond)

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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