BC chairman defended inflation targeting regime which he says helps anchor expectations about price behavior
São Paulo and Brasilia – The president of Central Bank (CB), Robert Campo Netosaid this Wednesday 17, that the tightening of the commissions, currently around 13.75% per annum, is beginning to bear fruit. “A inflation in Brazil it started declining relatively earlier than in other developing countries,” Campos Neto said, opening the BC’s annual conference.
“In the second half of 2022, the main driver of reducing inflation was the tax cuts implemented on fuel, electricity and telecommunication services, but the decrease in inflation is also due to the monetary policy tightening cycle,” he said. added, citing the deceleration in price indices over the period.
According to him, the process of falling inflation should continue, but not linearly, as core inflation (which excludes one-time factors from prices) is more resilient, due to the spread of price increases across sectors and pressures on components such as services.
Campos Neto also defended the inflation targeting regime, which he said helped anchor expectations about price behavior. In the debate on changing the targets, as a way to make room for a drop in interest rates, the BC president argued that the credibility of the target regime lies precisely in its stability, as well as in the fact that it does not change as a result of the economic situation or the monetary policy cycle.
“The target regime in our country has been successful. The regime has proven to be a stable and robust framework, responding to different phases of the economic situation and helping to anchor (inflationary) expectations,” he said.
According to Campos Neto, the weakening of expectations is partly related to questions about the change in objectives, as well as uncertainties about Brazil’s economic policy, especially in the fiscal environment.
According to the BC president, decisions that increase confidence in inflation targets contribute to a faster and cheaper disinflationary process. Regarding the new fiscal framework, he said the new fiscal rules could “finally” help re-anchore expectations, as well as avoid more extreme scenarios for the public debt trajectory.
However, Campos Neto reiterated that there is no mechanical relationship between monetary policy and the presentation of the fiscal picture. He also stressed that the speed of disinflation tends to be slower at the moment and that the fight against inflation remains a major challenge for central banks.
Source: Terra
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