(Bloomberg) -- Brazil’s policymakers debated whether the recent slump in the real occurred in a market that had ceased to operate normally, which might justify intervention by the monetary authority.
“The central bank discussed whether there was a dysfunctionality in the exchange rate,” central bank director Gabriel Galipolo said Friday, at an event in Sao Paulo. “The central bank will only act if there is dysfunctionality.”
Galipolo made his remarks after the real slumped on Thursday to its weakest-ever rate of more than six per dollar after the government’s proposal to cut spending fell short of traders’ expectations. He didn’t elaborate on what he and his colleagues concluded.
Unanchored inflation expectations are “a source of great discomfort” for the bank, Galipolo said.
“By various metrics we can see that the job market is quite heated,” he said. “If you have a more devalued currency and an economy growing more than expected, you will need to have a more contractionary interest rate for longer.”
Galipolo is scheduled to take over as the central bank’s governor in January.
--With assistance from Raphael Almeida Dos Santos.
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