MNI BRIEF: BCB Shouldn't Overreact To Market Swings - Galipolo

The Central Bank of Brazil should not overreact to financial market volatility, Deputy Governor for Monetary Policy Gabriel Galipolo said on Friday, adding the reaction function of the monetary authority considers several factors beyond swings in asset prices and exchange rates.

"It is important at times like these that monetary authorities do not enter a hall of mirrors, reacting to market volatility with the same intensity," he said in reference to a concept coined by former Fed Chair Ben Bernanke in a 2004 paper.

"The central bank's reaction function is different, there is a reflexive dynamic (between the central bank and the market), but it is important that it does not become a reflex that increases volatility," he said at an event sponsored by the University of Brasília (UnB). (See MNI POLICY: BCB Pause In Sight, But Copom Consensus In Doubt)

His comments came amid significant volatility, especially in the exchange rate market, which has depreciated from BRL5.09 at the time of Copom’s last meeting on May 8 to BRL5.26 on Thursday, weakening to as low as 5.30 the day before.