Inflation target in Brazil to be re-assessed after minimum two years
By unanimous decision of the National Monetary Council (CMN), the inflation targeting regime will change in 2025. The system will transition to a continuous regime with a longer-term perspective, said Finance Minister Fernando Haddad and Planning Minister Simone Tebet.
Along with the head of the Central Bank, they form the CMN, the highest body of Brazil’s National Financial System responsible for devising monetary and credit policies, aiming for currency stability.
The decision was made Thursday (Jun. 29) in Brasília during the council’s monthly meeting. The inflation targets for 2024 and 2025 were also maintained at three percent, with the same tolerance margin. For 2026, the target will be three percent, with a tolerance margin of 1.5 percentage points up or down.
The difference is that, starting in 2025, the assessment of target compliance will follow a timeframe longer than one year. For this year, the target remains at 3.25 percent, also with a tolerance of 1.5 percentage points.
Carte blanche
The inflation targeting regime has been in place since 1999, with the CMN approving yearly targets for the country’s broad price index IPCA for the following years.
Haddad described the change in the model as a “necessary modernization,” adding it should bring Brazil in line with other nations that practice inflation targeting.
“As it stands today, only two countries that adopt inflation targets use the calendar-target model,” he noted. The minister mentioned that he and Tebet were given carte blanche from President Lula to make “the most appropriate decision for the moment.”
The details, the minister went on, will be defined in a decree to be issued by President Lula. However, the minister revealed that, in practice, the new system will assess target compliance after 24 months, with the timeframe defined by the Central Bank. The minister emphasized that the new model is key because it should allow for faster convergence of monetary policies and fiscal policies.
“Considering everything that’s happening, starting in August, we have the conditions to make consistent cuts to interest rates. Indicators are showing convergence. We have reasons to be concerned about the economic slowdown. We want to ensure a better 2024 for society than 2023,” he noted.
Earlier on, Central Bank head Roberto Campos Neto stated the change will be an “improvement,” and that an internal study conducted by the institution indicated that the new timeframe would be more “efficient.”
