Inflation target for 2025 will be 3%, defines National Monetary Council

by

The CMN (National Monetary Council) defined this Thursday (23) that the inflation target for 2025 will be 3%, with a tolerance interval of 1.5 percentage points more or less.

The collegiate body also confirmed that the targets for 2022, 2023 and 2024 remain at 3.50%, 3.25% and 3%, respectively, with the same margin.

“The CMN believes that setting the inflation target in 2025 at 3.00% reduces uncertainties and increases the planning capacity of families, companies and the government, stimulating investment, production and increasing the well-being of Brazilian society. “, the Ministry of Economy said in a note.

“The fiscal consolidation process provides the necessary conditions for the target to be reached. The expectation of future inflation, projected in the most recent Focus Bulletin available for the year in question, appears to be anchored to the established inflation target”, he continued.

The CMN is currently chaired by Minister Paulo Guedes (Economy) and comprises the president of the BC, Roberto Campos Neto, and Esteves Colnago, special secretary for the Treasury and Budget of the Ministry of Economy.​

The target serves to anchor financial market expectations and, since 2019, it has been reduced by 0.25 percentage point per year to reach 3%, in line with other emerging economies.

Luiz Fernando Figueiredo, former director of the BC and founding partner of Mauá Capital, sees the 3% target as “a challenge” for Brazil. “But a good challenge”, he commented, before the CNM meeting.

The BC calibrates the basic interest rate, the Selic, to reach the center of the inflation target.

When inflation ends the year above the target ceiling, the BC president is obliged to present an open letter to the Minister of Economy justifying the reasons for not having met the target and explaining the measures that will be taken to bring inflation back to the limits. fixed.

This was the case in 2021, when Campos Neto wrote that double-digit inflation (10.06%) was to blame for the global phenomenon. The BC president also cited exchange rate pressure, fiscal risk and the water crisis to justify the breach of the target ceiling last year.

Faced with persistent and widespread inflation in recent months, with shocks caused more recently by the Ukrainian War, the monetary authority has already admitted that the target has not been met for the second year in a row.

In the 12-month period up to May, the IPCA (Broad Consumer Price Index) reached 11.73%. The BC estimate for 2022 inflation is 8.8%, far from the stipulated ceiling (5%).

The preliminary presentation of the quarterly inflation report, this Thursday, showed that the autarchy expects the IPCA to remain at 11.31% in the 12-month period up to August. In short-term projections, it considers increases of 0.81% in June, 0.84% ​​in July and 0.33% in August. In the quarter, it estimates an increase of 1.99%.

The inflation targeting system was adopted in 1999 to provide security to society about the direction of the economy, avoiding the risk of hyperinflation that hit the country in the 1980s and 1990s. The objective is set by the CMN three calendar years in advance. .

The decision to keep the 3% target in 2025 was in line with market expectations. Economists heard by Sheet before the CMN meeting pointed out that raising inflation targets would generate mistrust, affecting the BC’s credibility.

Ana Madeira, chief economist for Brazil at HSBC, said a change in tack would bring noise. “It is important for the credibility of the Central Bank to maintain the same levels,” she said.

For Andrea Damico, chief economist at Armor Capital, the margin of tolerance is already a sufficient mechanism to deal with atypical inflationary shocks. An upward revision would be seen, she said, as “a password to suddenly tolerate higher inflation at the expense of a more perennial price stability scenario.”

The partner and economist at Kairós Capital, Marco Maciel, stressed the importance of keeping inflation targets close to international standards, even though market expectations show that there is little belief in the convergence of inflation to the center of the objective next year.

“It is necessary to place our center of the goal in line with the rest of the world, otherwise we pay the price either in exchange or in the view of the competitiveness of the Brazilian economy,” he said.

You May Also Like

Recommended for you