MNI Brief: Forward Guidance Costly To Reverse - BCB Galipolo

The Central Bank of Brazil's governor Gabriel Galipolo said Monday that the board chose not to provide forward guidance for upcoming meetings due to uncertainty, and that the cost of having to revise the trajectory could be very high.

"We are still discussing the hiking cycle and what decision we’re going to make. Flexibility means that we’re open and will come to the next meeting ready to decide what to do," he said at an event hosted by the Center for Public Policy Debate (CDPP) in São Paulo.

"I’m not saying we’re giving up any tools, but I think today’s recommendation is to try not to tie ourselves down or commit to any kind of guidance. I believe that attempting to create a shortcut to gain credibility could end up being very costly for the central bank if that path needs to be revised later," he added.

Galipolo also said that the Tax on Financial Transactions (IOF) shouldn’t be used either for revenue purposes or as a tool to support monetary policy. "I see it as a regulatory tax, as it’s clearly defined," he stressed, noting that the central bank is waiting to see what the final design will look like before incorporating it into its projections. (See MNI INTERVIEW: Brazil Budget Positive Despite Noise- IFI Head)