Brazil central bank chief says tightening cycle still open

BRASILIA (Reuters) -Brazil's central bank governor said on Monday that the monetary tightening cycle is still open and that policymakers want to preserve their flexibility to digest incoming data and calibrate the appropriate terminal interest rate.

"We are still discussing the hiking cycle," Gabriel Galipolo said at an event in Sao Paulo. "Flexibility means we are open."

The bank's monetary policy committee meets later this month for its next rate decision, after raising the benchmark Selic rate by 50 basis points in May to 14.75%, its highest level in nearly two decades.

Policymakers last month dropped forward guidance and any mention of the need for a more restrictive rate, instead highlighting the necessity of maintaining a restrictive stance for a prolonged period.

The shift was widely interpreted as a signal that the aggressive 425-basis-point tightening cycle may have come to an end.

Galipolo said that at this moment, as the central bank calibrates the terminal interest rate, it is "obvious" that the model increasingly weighs how long rates will remain at a contractionary level.

Following official data last week showing strong growth in the first quarter for Latin America's largest economy, he emphasized the economy has continued to show surprising resilience, adding that policymakers want to gather more data to be sure activity is on a clear trend.

Regarding a controversial hike in the financial transactions tax, Galipolo said it was necessary to wait for the final design of the measure before assessing its impact, an analysis that would be conducted with due caution by the central bank.

He reiterated, however, that he does not consider it appropriate to use the regulatory tax as a tool for boosting revenue or supporting monetary policy.

His remarks came amid market interpretations that, by making corporate credit operations more expensive, the government's measure could help cool the economy in line with the central bank's goals, potentially reducing the need for further rate hikes.

(Reporting by Marcela Ayres; Editing by Leslie Adler and Aurora Ellis)

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