For the BC president, noise with the government affects inflation forecasts

Central Bank (CB) president Roberto Campos Neto said on Monday (22) that public disagreements between the monetary authority and the federal government are among the factors keeping inflation expectations high. “The noise between the government and the central bank has generated uncertainty about the ability of the central bank to achieve its objectives”he said in a conference promoted by the Folha de S. Paulo newspaper.

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 will have to see how it will develop. But I think we have the elements to start seeing this inflation expectation drop”He added.

However, this Monday’s Focus Bulletin brings a reduction in the financial market’s inflation forecast for the nationwide expanded consumer price index (HICP), which has fallen from 6.03% to 5.8% this year. For 2024, the inflation projection was 4.13%. For 2025 and 2026 the forecasts are 4% for both years.

The president of the BC says he believes that raising the inflation target would not bring positive effects. “Changing the target upwards now would not generate flexibility [para a política fiscal do governo]”he said.

Defined by the National Monetary Council (CMN), the inflation target for this year is 3.25%, with a tolerance range of 1.5 percentage points more or less. 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.

different cycles

Despite defending that monetary policy and fiscal policy should have “harmony”Campos Neto stressed 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 must have harmony between the fiscal and the monetary, but they do not always have the same cycle. Intertemporally, the cycles are different. The time of effect is different”he said.

The president of the BC also said that he does not see any problem in which the work of the monetary authority faces criticism, as President Luiz Inácio Lula da Silva has done on several occasions. “The president has a right to enter an interest rate debate that is unfolding in many other countries”he reflected when asked about the subject.

Campos Neto defended the BC’s stock, especially during the past year when the base interest rate was raised to contain inflation. “If we didn’t have autonomy, the Brazilian electoral period would have more volatility on the markets. Of course it’s hard to prove that,” Central Bank President Roberto Campos Neto said.