BC president defends continuous inflation target

“Work was done back there, it started in 2017, and this study shows that the goal continues, it is more efficient”, said Campos Neto in the disclosure of the BC Inflation Report. “This is an improvement of the system of goals that we find interesting”, he added about a possible change.

The continuous target model is defended by the Minister of Finance, Fernando Haddad. Currently, the Central Bank pursues an inflation target established each year, with a tolerance margin of plus or minus 1.5 percentage points. In the continuous target system, used in several developed countries, the horizon can be open or obey a period greater than one year, such as 18 or 24 months.

“At some moments in our history, what happened is that the government was worried about exceeding the target in the specific year and ended up taking measures at the end of the year that would cause that inflation to fall in a timely manner and that generated an allocation of resources that did not were more efficient from an economic point of view”, explained Campos Neto, about the lack of efficiency of the current model.

The BC president also explained that most countries no longer use the target per calendar year and that the system was implemented in Brazil at a time of very high inflation, with the need for short-term earnings of the targets.

For this year, Brazil’s inflation target is set at 3.25% and, for 2024 and 2025, at 3%, all with the same margin of tolerance.

With monthly meetings, the CMN is formed by Campos Neto, by Haddad; by the Minister of Planning, Simone Tebet. Generally, decisions take place by consensus, but, in case of disagreement, they are decided by majority vote.

drop in interest

The main instrument used by the BC to reach the inflation target defined by the CMN is the Selic rate, the economy’s basic interest rate. At the last meeting, the Monetary Policy Committee (Copom) decided to Selic maintenance at 13.75%the highest level since January 2017. In March last year, the Central Bank began a monetary tightening cycle, amid rising food, energy and fuel prices.

The decision has motivated criticism from the federal government since the effects of the monetary tightening are felt in the credit enhancement and the economic slowdown.

According to Campos Neto, most Copom members, made up of BC directors, see an “open door” to start the interest rate cut in Augusthowever, the decision will depend on the economic variables at the time.

“You had a group that understood that it was not good to leave the door open at all and there was a group that understood that it was good to leave the door open and what prevailed was the view of leaving the door open, and that was what was explained , is the Copom minutes”, he said, adding that there is a “great majority” view that the process, regarding the next steps, has to be done with parsimony.

The background, according to Campos Neto, is that the disinflation process is ongoing. In May, the Extended National Consumer Price Index (IPCA) stood at 0.23%, according to the Brazilian Institute of Geography and Statistics (IBGE). The result is lower than the April rate of 0.61%. In 12 months, the indicator accumulates 3.94%, below the 4.18% accumulated until April.

Campos Neto also cited the improvement in other economic variables, such as a drop in future interest rates, growth in the Gross Domestic Product (GDP, sum of all goods and services produced in the country), improvement in consumer confidence and an increase in the debt rating of the Brazil by the agency Standard & Poor’s risk rating.