Haddad has lunch with Campos Neto and talks about inflation target – 06/01/2023 – Market

Minister Fernando Haddad (Finance) said this Thursday (1st) that he had spoken with the president of the Central Bank, Roberto Campos Neto, about resolving the issue of the inflation target later this month.

The topic is traditionally discussed at the June meetings of the CMN (National Monetary Council), but this time there is greater expectation around the subject, as the government has already indicated that it may want to change the target to be pursued by the monetary authority in the coming years. .

Haddad said he had lunch this Thursday with Campos Neto. “We talked about the opportunity to resolve this issue this month [da meta de inflação]”, said the Minister of Finance, without giving further details.

“We talked at length about the economic scenario in 2023, 2024 and 2025. We are exchanging views all the time, technicians from my team and his team, so that we can increasingly converge the purposes of the Central Bank and the Treasury in the same direction,” he said.

President Lula (PT) has already publicly criticized the targets set for 2023, 2024 and 2025. More recently, Haddad defended an adjustment in the horizon of the target to be pursued. Today, the BC is aiming at the inflation index for the year ended, but the Minister of Finance has already shown himself in favor of a moving target, unrelated to the calendar year.

The inflation target is defined by the CMN, a collegiate formed by the Treasury, Planning and BC presidents.

The definition of the targets adopted until 2025 was made during the administration of Jair Bolsonaro (PL), since the choice of the target is made three years in advance.

Inflation targets today are 3.25% in 2023 and 3% in 2024 and 2025, with tolerance margins of plus or minus 1.5 percentage points.

At the next meeting, the CMN should indicate the inflation target for 2026 and may, additionally, change the targets already defined for 2024 and 2025.

In early April, the petista defended changes in goals. “These days, I read a sentence that I don’t know if it was said by the president of the Central Bank that, to reach the 3% target, 20% interest would be needed [Campos Neto falou em 26,5%]. I don’t know if that was true, but at the very least it’s unreasonable. because if the goal [de inflação] is wrong, the goal is changed”, said Lula.

The president indicated betting on a higher inflation target to try to push the BC to cut the basic interest rate, the Selic, today at 13.75%. This would be one of the few ways for the PT to exercise some influence over monetary policy, since the BC has autonomy guaranteed by law.

Market economists, however, assess that any change would have the opposite effect than expected, since raising the target could convey the message of a more lenient government with price increases —contributing to a deterioration in expectations.

This view was even defended by Campos Neto at the end of May, in an interview with GloboNews. He argued that the best thing would be not to change the monetary policy targets at this moment, as this is a period of great uncertainty.

“It is important to understand that when you make a change in the target thinking that you will gain flexibility to drop interest rates, it usually has the opposite effect. It means that changes in the target or changes in the framework, in general, have to be made aiming to gain efficiency, and not a degree of freedom, otherwise you end up losing instead of winning”, he said.