Changing the inflation target is not on the agenda, says secretary – 02/10/2023 – Market

Amid pressure from the government against the level of the country’s basic interest rate, the secretary of Economic Policy at the Ministry of Finance, Guilherme Mello, said this Friday (10) that the portfolio commanded by Fernando Haddad did not guide a discussion on a change in inflation targets in its technical bodies, but suggested that the debate is valid amid high global inflation.

At an event promoted by Bradesco Asset Management, Mello stated that this agenda was scheduled for June this year —when the National Monetary Council would set the target for 2026—, but said he learned from the press that the Central Bank would intend to anticipate this discussion.

“It is a debate that is happening not only in Brazil, it is a global debate, in the sense that the inflationary shocks from the moment of Covid, through the war in Ukraine and until the present moment have been persistent, this has presented a challenge to the monetary authorities,” he said.

Noting that everything indicates that 2023 should be the third consecutive year of non-compliance with the inflation target in Brazil, Mello said that the facts raise a debate about the adequacy of the target, the best instrument and the inflation convergence period.

“The Secretariat for Economic Policy is going to prepare itself to guarantee the minister all the technical subsidy present in the literature, in the international comparison about what are the pros and cons of each choice”, he said.

President Luiz Inácio Lula da Silva has been harshly criticizing the Central Bank’s performance on the grounds that an excessively high Selic rate due to a very low inflation target would be compressing the economy.

The statements raised debate about the risks of an eventual easing of inflation targets, which would allow the Central Bank to reduce the dose of monetary tightening.

In the presentation, Mello said that monetary policy has an impact on the government’s debt and defended a process of reducing inflation associated with economic growth.

“We believe that it is possible for you to deflate the economy while maintaining a sustainable level of growth and that allows, with the improvement of the quality of public policies, to advance in the themes of combating poverty, combating hunger, income distribution and an economic development program “, he said.

The Central Bank’s efforts to bring inflation up to the target have, among its main factors, an increase in the cost of financing, reducing the circulation of money in the economy, which compresses demand and reduces activity.

The level of basic interest at 13.75% per year, the highest level since 2017, has been the target of attacks by the president, ministers and parliamentarians allied with the government.

Mello also defended that the country advances in a fiscal reform that is sustainable, transparent and “minimally flexible”. He stated that the proposal could help to anchor inflation expectations, but pondered that the progress of the measure will depend on policy.

The secretary also said that Desenrola, a program for renegotiating family debts, will rely on government resources to guarantee operations.