Brazil’s Goldfajn confronts tough balancing act

LIMA: When Ilan Goldfajn ( pictured) presides over his first policy meeting on Wednesday as Brazil’s central bank chief, he’ll have a daunting task: reviving an economy mired in its worst recession in a more than a century while restoring the bank’s inflation-fighting bona fides.

Traders and analysts — who expect the central bank to keep interest rates unchanged at a 10-year high of 14.25 per cent — will be paying close attention to the bank’s statement for a read on Goldfajn’s plan of action. To Goldman Sachs Group Inc’s Alberto Ramos, Goldfajn must make clear his commitment to quash inflation, which has long plagued Latin America’s biggest economy. “The most important contribution that the central bank can make to the economy is delivering low and stable inflation,” said Ramos, Goldman Sachs’s Chief Latin America economist.

At 8.84 per cent, Brazil’s inflation rate is almost twice as high as the central bank’s target. Goldfajn’s predecessor, Alexandre Tombini, failed to slow price increases to the bank’s 4.5 per cent goal during his five-anda-half-year tenure. Confidence in the bank was further eroded after it cut its key Selic rate to a record low in 2012, spurring speculation it bowed to government pressure to prioritize economic growth over stemming inflation. For an in-depth look at Brazil’s credit market, click here.

As part of Goldfajn’s effort to rebuild the central bank’s credibility, he has added four new directors to its nine-member board.

Still, the former chief economist of Itau Unibanco Holding SA won’t have the luxury of focusing exclusively on taming price increases as the recession drags on. Acting President Michel Temer said last month that he would “hope” a rate cut could happen at some point. Easing may not come soon, as rate-swaps traders are betting Goldfajn will refrain from cuts until October.