Economists in Brazil advise against changing central bank targets

The leading economists of Brazil They told the central bank that raising inflation targets now would only raise doubts about the government’s commitment to sound fiscal and monetary policies, according to seven participants in a meeting with the monetary authority on Monday.

Economists expressed the unanimous opinion that such a move, at a time when the president Luiz Inacio Lula da Silva is pushing to reduce borrowing costs, it would likely backfire and end up leading to more inflation, higher interest rates and a weaker economy, said the participants, who requested anonymity to provide details of the private discussion.

The Director of International Affairs, fernanda guardadoand the director of Economic Policy, Diogo Guillénreceived the economists at the headquarters of the central bank in Sao Paulo, in the first face-to-face meeting since the pandemic. Also present was a representative of the Treasury. All refrained from comment, as usual, the participants said.

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The government is considering an early review of Brazil’s inflation targets, while Lula complains that interest rates of 13.75% make it impossible for the economy to grow. As the leftist president questions the recently approved central bank autonomy law, investor attention is focused on Roberto Campos Neto, the head of the monetary authority, who later Monday will make a rare appearance on one of the most traditional talk shows on Brazilian television.

In Brazil, the central bank has autonomy to apply the policies it deems necessary to achieve the inflation targets, but it does not set them. That task belongs to National Monetary Councila government body composed of the ministers of Treasury and Planningin addition to Net fields. Currently, Brazil is targeting a consumer price increase of 3.25% by 2023 and 3% for the next two years.

less bad option

While no one believes that greater tolerance for inflation will lead to lower interest rates in the future, some economists have argued that if a higher target is inevitable, the least bad option would be to set it now at 3.5% to limit the damage. of months of uncertainty, according to some of the participants.

He National Monetary Council it traditionally discusses inflation targets in June, but could do so this week, during a regular meeting scheduled for February 15.

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If they do, clear communication will be key to signaling whether the goal is final or just an intermediate step toward even higher goals, added two participants.

In recent statements, the central bank He has expressed concern about the inflation outlook, which has been deteriorating since Lula began to criticize the level of interest rates. However, those responsible for monetary policy are focused above all on expectations for the coming year, which remain above the target, but within their tolerance range. Most analysts are betting on rate cuts beginning in November, according to a weekly survey.