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UPDATE 1-Central banks falling behind inflation curve would be threat to EM, says Brazil's Campos Neto

·2 min read

(Adds detail, quotes)

By Jamie McGeever

BRASILIA, May 31 (Reuters) - Brazil's central bank chief Roberto Campos Neto warned on Monday that emerging markets will suffer if the current rise in global inflation proves not to be temporary and central banks in the developed world fall behind the curve.

In a panel discussion at the 2021 Brazil Investment Forum, Campos Neto also said he is optimistic on the domestic growth outlook, noting upbeat leading indicators in the first half of the year and expressing confidence for a positive reaction to the post-pandemic reopening in the second half.

Campos Neto outlined two scenarios for emerging markets resulting from how policymakers in the industrialized world manage the current rise in inflationary pressures.

"The most important factor is whether this inflationary process ... is a process accompanied by growth, is temporary, and is justified by growth, or whether the market is signaling governments are behind the curve and that central banks should make further (policy) adjustments," Campos Neto said.

"The first case is benign for the emerging world, the second isn't," he said.

Campos Neto stressed that he and his colleagues remain "vigilant" on inflation, pointing out that they started their policy tightening cycle with more rate hikes than analysts had expected.

The central bank's weekly FOCUS survey of over 100 economists on Monday showed the 2021 inflation outlook at a new high of 5.3%, well above policymakers' target, pushing the outlook for official interest rates to a fresh peak of 5.75%.

Campos Neto echoed the FOCUS survey's latest uptick in the growth outlook.

"We are optimistic on growth, with the way the economy is reacting, and we are optimistic about the possibility of reopening in the second half of the year," Campos Neto said, mentioning specifically an expected acceleration in vaccinations nationwide. (Reporting by Jamie McGeever, Editing by Rosalba O'Brien and Cynthia Osterman)