Brazil cenbank nominee vows to cut inflation to target rate

By Alonso Soto

BRASILIA (Reuters) – Brazil’s nominated central bank chief Ilan Goldfajn vowed on Tuesday to keep a lid on price pressures as part of the interim government’s efforts to rebuild the “tripod” policy framework of fiscal discipline, low inflation and a free exchange rate.

Goldfajn, former chief economist at lender Itau Unibanco, was speaking to the Senate’s economic affairs committee for his confirmation hearing. The committee approved his nomination, but the Senate must still ratify the decision.

He said the bank’s current chief, Alexandre Tombini, will lead the decision on interest rates on Wednesday, signaling he will not take part in the two-day rate-setting meeting that starts later on Tuesday.

Interim President Michel Temer, who replaced President Dilma Rousseff while she stands trial for allegedly doctoring fiscal accounts, has picked market-friendly economists and executives for key posts in a bid to regain investors’ confidence.

Temer, who was Rousseff’s vice president, has pledged to abandon years of state intervention for more business-friendly policies to end Brazil’s worst recession in decades.

Goldfajn, who was the central bank’s director of economic policy between 2000 and 2003, said he will seek to “fully” comply with the bank’s objective to bring inflation down to the 4.5 percent center of the official target range. The bank has overshot the target center for the past five years.

He twice defended a floating exchange rate regime in his speech, helping boost the country’s real currency by 0.67 percent to 3.46 reais per dollar.

Many traders saw the comments as a sign he would let the currency strengthen past 3.50 per U.S. dollar, a level that triggered central bank interventions.

The Israeli-born economist said the currency should not be used as an instrument to bring down inflation. Recently, the government has intervened to strengthen the real to soften inflation – a move which many analysts said conflicted with the tripod policy framework of the past decade.

“I believe there is consensus that we need to rebuild as soon as possible the tripod framework … that brought social and economic gains to Brazil in the recent past,” Goldfajn said.

The central bank is widely expected to keep its benchmark Selic rate at a near 10-year high of 14.25 percent on Wednesday as inflation remains well above target.

Brazil’s inflation has eased from 12-year highs earlier this year but is not expected to reach 5 percent until next year.

Consumer prices rose 9.62 percent in the 12 months through mid-May , up from 9.34 percent in mid-April.

(Additional reporting by Silvio Cascione; Editing by W Simon and Andrew Hay)