Inflation target becomes continuous from 2025, decides CMN

The agency maintained the targets for 2024 and 2025 at 3%, with the same margin of tolerance. The CMN also announced the inflation target for 2026, which will be 3%, with a tolerance margin of plus or minus 1.5 percentage points. The difference is that, from 2025 onwards, the verification of compliance with the target will begin to take longer than one year.

For this year, the target was maintained at 3.25%, also with a tolerance of 1.5 percentage points. The inflation targeting regime has existed since 1999, with the CMN approving, each year, targets for the Extended National Consumer Price Index (IPCA) for the following years.

According to Haddad, the details will still be defined in a decree to be edited by President Luiz Inácio Lula da Silva. He, however, added that, in practice, the new system will verify compliance with the target in 24 months, with the horizon defined by the Central Bank.

Majority of votes

Formed by the finance ministers, Fernando Haddad; Planning, Simone Tebet; and by the president of the Central Bank, Roberto Campos Neto, the CMN meets every month. Decisions are usually consensual, but in case of disagreement, they are decided by majority vote.

According to Haddad, the continuous inflation target will only apply from 2025 onwards because that will be when BC president Roberto Campos Neto’s mandate ends. For the minister, the new model is important for the country because it will allow for a faster convergence of monetary (definition of interest rates) and fiscal (control of public spending) policies.

“Because of everything that is happening, as of August we are in a position to have a consistent cut in interest rates. Indicators are showing convergence. We have reason to be concerned about the slowdown (of the economy). We want to guarantee society a better 2024 than 2023. Practicing interest rates around 9% per year is something that should be reviewed by society, in light of the indicators”, declared Haddad.

Decree

The decree with the new regime, explained the Minister of Planning, Simone Tebet, does not yet have a release date because the text still depends on legal analysis by the Planalto Palace. Under current legislation, the 2026 inflation target needs to be published this Friday (30) in the Official Gazette. In theory, the change of regime can be postponed.

According to the minister, there were no disagreements with the Central Bank because the decision was unanimous. “The votes were unanimous. There was not even discussion or objection. I was at the meeting. Just to be clear, the target hasn’t changed at all, it’s 3%. Neither will the interval, because not only the market expectations but also the Focus Bulletin itself (BC’s weekly survey with financial institutions), we will already be within the targets, within the intervals”, justified Tebet.

Earlier, the BC president said that the system of continuous targets would be an “improvement” and that an internal study by the body indicated that the new horizon would be more “efficient”.

White card

Haddad classified the model change as “a necessary modernization” and said that the change will make Brazil in tune with the other countries that practice the inflation targeting regime. “Currently, only two countries that adopt inflation targets use the target calendar”, he explained. The minister said that he and Tebet received carte blanche from President Lula to make “the most convenient decision for the moment”.

Under the current regime, the president of the Central Bank is obliged to send a letter to the Ministry of Finance justifying non-compliance with annual inflation targets. According to Haddad, the system of continuous targets should make the BC send more letters. “The letter will be published at least annually, but this tends to be more frequent than in the current situation,” he said, without going into details.

Although at this Thursday’s meeting the CMN set the inflation target for 2026, Haddad said that it will no longer need to be defined year by year with the new system. “The government no longer has the obligation to set the target annually, unless it wants to change it. If there is no prospect of change, it does not need to be confirmed (year by year). This takes away from the model an unnecessary apprehension, because it will only come together if it makes a change down or up necessary, ”he declared.

*Updated article to add information