Brazil's central bank chief says bank can't act preemptively on economic slowdown

By Marcela Ayres

SAO PAULO, Feb 14 (Reuters) - Brazil's central bank chief on Friday acknowledged market concerns about how the bank would react to an economic slowdown but said it could not act preemptively on something that has yet to materialize.

Speaking at an event hosted by industry group Fiesp, Gabriel Galipolo said the bank had moved decisively, raising rates by 100 basis points in January to 13.25% and signaling a matching hike for the next policy meeting in March.

He said monetary tightening would have its intended effect and the central bank could not shy away from its inflation-fighting mandate. Policymakers want to ensure the data reflects an actual economic slowdown rather than short-term volatility, he added.

"I think there is (market) uncertainty about what a reaction function might be from this slowdown," he said, acknowledging expectations that a slowdown could prompt some form of economic stimulus.

Galipolo said acting preemptively is different when economic activity is clearly accelerating or slowing.

"It's another thing to react to something the market sees or perceives as a possibility but that isn't actually there. It would be a mistake for monetary policy to act preemptively on a ghost," he added.

Galipolo noted that asset markets have risen on relief that tariffs threatened by U.S. President Donald Trump have not been immediately imposed.

He pointed out that there was initially widespread expectation that Trump's policies would be inflationary and that other currencies would depreciate against the U.S. dollar.

The Brazilian currency, which lost more than 20% against the U.S. dollar in 2024, has risen nearly 8% year to date. (Reporting by Marcela Ayres Editing by Christina Fincher)