The BC president said he is included in the group of economists who believe that changing the inflation target would have the opposite effect on the calibration of base interest rates
The president of Central bank, Robert Campo Netohe said in an interview with the show Living wheelfrom TV Cultura, on the night of this Monday 13, that a modification of the inflation target, at this moment, would have the opposite effect to that desired and would cause “loss of flexibility”.
Currently, the target for 2023 and 2024 is 3.25% and 3%, respectively, with 1.5 percentage points of tolerance up or down. The number is defined by National Monetary Council (CMN), composed of the Ministers of Finance and the Budget and the President of the Central Bank. In 2022, inflation was 5.79%.
“I think if you make a change now, without having a quiet environment, what’s going to happen is it’s going to have the opposite effect to what you want. Instead of gaining flexibility, you may lose flexibility,” she said.
According to Campos Neto, there are many divergences among economists on the subject. One group, he says, believes the current target is far too low, because US inflation has soared, and the target was difficult to achieve because it was set in a scenario where global inflation was low and he believed the pandemic would generate deflation.
The other group, according to the BC chairman, claims that increasing the target now would be equivalent to what the market has already projected, which would therefore ask for an even higher risk premium. “So not only will you not gain flexibility, you will lose it. I’m in that second group today,” he said.
He defended an “improvement” of the objectives to try to contain inflation, but did not want to describe it because it is a “sensitive issue that affects the market”. “This will be discussed at the CMN, it’s not a proposal from the Central Bank.”
He reiterated that “at no point does he advocate simply increasing the target, in the sense of gaining flexibility.” “Also because it is not our belief. We believe that a change of objective must be made in the sense of gaining more flexibility and the practical effect will be that of losing flexibility”, she said.
Campos Neto was asked if he discussed bringing forward the change of goal with the Finance Minister, Fernando Haddadand proposed, in July last year, to change this year’s target, an idea rejected by the then Economy Minister, Paulo Guedes.
The BC leader replied that he has never disagreed with Guedes on the matter. “We thought a little about what the reality in Brazil would have been if the world had gone back to living in an inflationary period. In relation to simply proposing to the government an increase in the target, no. What I said, at a certain point , is that if there is a desire to talk about the target, that the Central Bank has some studies to improve the target, which would generate an efficiency gain in addition to the target”, he replied.
Source: Terra
Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.
