For BC president, noise with the government affects inflation forecast

The president of the Central Bank (BC), Roberto Campos Neto, said this Monday (22nd) that public disagreements between the monetary authority and the federal government are among the factors that keep inflation expectations high. “The noise between the government and the Central Bank generated uncertainty regarding the Central Bank’s ability to achieve its objectives,” he said in a lecture promoted by the Folha de S. Paulo newspaper.

In addition, according to Campos Neto, there is uncertainty in the market about the possibility of changing the inflation target. “The uncertainty component of the target is predominant, we need to see how this will develop. But, I think we have elements to start seeing this expectation of inflation falling ”, he added.

However, this Monday’s Focus Bulletin brings a reduction in the financial market’s inflation forecast for the Extended National Consumer Price Index (IPCA), which fell from 6.03% to 5.8% this year. For 2024, the inflation projection was 4.13%. For 2025 and 2026, forecasts are 4% for both years.

The BC president says he believes that raising the inflation target would not bring positive effects. “Changing the target now upwards would not generate flexibility (for the government’s fiscal policy),” he said. Defined by the National Monetary Council (CMN), the inflation target is 3.25% for this year, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%.

The CMN is made up of the Ministers of Finance, Planning and the President of the Central Bank.

Harmonia

Despite defending that monetary policy and fiscal policy must have “harmony”, Campos Neto highlighted that the actions of the government and the Central Bank have important differences. “It is important to separate the political cycle from the economic cycle. We need to have harmony between fiscal and monetary aspects, but they don’t always have the same cycle. Intertemporally, the cycles are different. The time of effect is different, ”he said.

The BC president also said that he does not see any problems in which the performance of the monetary authority suffers criticism, as has been done on several occasions by President Luiz Inácio Lula da Silva. “The president has the right to enter into a debate on interest rates that is taking place in several other countries”, he pondered when asked about the subject.

Campos Neto, however, defended the action of the Central Bank, especially during last year, when the basic interest rate was raised to contain inflation. “If we didn’t have autonomy, the Brazilian election period would have more volatility in the markets. Obviously, it is difficult to prove this, ”he said.