Haddad: inflation target is not in this CMN meeting – 02/14/2023 – Market

The Minister of Finance, Fernando Haddad (PT), said this Tuesday (14) that there is no discussion of changing the inflation target foreseen in the agenda of the CMN (National Monetary Council) meeting this Thursday (16).

In a conciliatory tone, he also sought to lower the temperature of the debate on the subject and said that the president of the Central Bank, Roberto Campos Neto, made an “important recognition” of the government’s adjustment measures in an interview with the program Roda Viva, on TV Cultura. , this Monday (13).

“There is a thing called Comoc [Comissão Técnica da Moeda e do Crédito], which defines the agenda of the CMN. It is not on the agenda,” said the minister.

The CMN is formed by ministers Haddad and Simone Tebet (Planning and Budget) and by the BC president. The Comoc, on the other hand, is made up of technicians from these bodies and meets the day before the council’s decisions.

Other government interlocutors also told the Sheet that there is no forecast for the subject of the target to be discussed at the meeting on Thursday.

The CMN is the collegiate body responsible for defining the inflation target to be pursued by the BC in carrying out its interest rate policy. This year, the target to be indicated by the council is 2026.

If the government wants to change any of the goals already set by 2025, a presidential decree authorizing the change would be necessary.

The debate about a possible change in inflation targets has gained strength in the wake of criticism by President Luiz Inácio Lula da Silva (PT) of the current interest rate level — the Selic is at 13.75% per annum.

The PT advocates easing the target to 4.5%, in the expectation that this will make room for the BC to cut interest rates —although economists warn that the concrete effect of the measure would be the opposite, as it increases uncertainties. Today, the inflation targets are 3.25% in 2023 and 3% for next year.

This Tuesday, Haddad echoed the tone of conciliation adopted by Campos Neto in the interview with Roda Viva.

“We got recognition yesterday [segunda] in the BC president’s interview that the measures being taken are in the right direction. This is very important for us, to obtain this recognition”, said the minister.

The measures cited by Haddad were presented in January by the Ministry of Finance, with a central focus on revenue recovery. The government announced a package with a projected impact of up to R$242.7 billion, but the market sees an adjustment of around R$120 billion as feasible.

The minister himself has already acknowledged that only part of the measures will be effectively achieved and that the country will still have a fiscal deficit in 2023, but limited to R$ 100 billion.

According to Haddad, the package can help convince the Central Bank that there are fiscal conditions to start a cycle of cutting interest rates.

“The current interest rate poses certain difficulties for the economy to grow. But our January 12 plan is in progress,” said the minister.

“As the results will come, and I can say that they will come, I am sure that this will help the monetary authority to conclude that we are, perhaps, with an interest rate at the moment that compromises the country’s objectives”, he said.

Haddad highlighted that the president of the BC himself said, in Roda Viva, that, if the expectations of economic agents for inflation return to the level of November or December 2022, it is possible to reach a more favorable trajectory.

“If we bring the debate to the concrete level, of what is being done, we can recover an important trajectory”, stated the holder of the economic portfolio.

He also returned to defend the harmonization of monetary and fiscal policies. “Either you align these policies around the same purpose, which is to make the economy grow with low inflation, or it will be bad for everyone to meet their goals”, he warned.

In an interview with Roda Viva, Campos Neto denied that he had defended the increase in inflation targets in conversations with members of the Lula government. According to the president of the BC, a revision of the targets at this moment would have the opposite effect to the desired one on interest rates.

“If we make a change now, without an environment of tranquility and an environment where we are reaching the goal easily, what will happen is that you will have an effect contrary to the desired one. Instead of gaining flexibility, you can end up losing flexibility,” he said.

Campos Neto acknowledged that he spoke with members of the economic ministry about studies conducted by the BC’s technical team over the years for an eventual “improvement” of the system. He, however, did not give details of how this improvement would be, claiming it is a “sensitive topic, which affects the market”.

Discussions on the inflation target dominated the meetings between BC directors and economists from the private sector earlier this week. According to reports heard by Sheetat the first meeting, a portion of the participants took the revision of the goals by the PT government for granted and defended that, in this case, the adjustment should be made as quickly as possible.

Another group, in turn, considered that the 3% target is compatible with the level practiced by other Latin American countries and that its elevation will not make room for anticipating the drop in interest rates. It is a consensus among analysts, according to reports, that it would not be positive to change the system in the current context, given the risk of an increase in inflation expectations. In the opinion of the participants, an eventual change would make it more difficult –and not easier– for the Central Bank to fight inflation.

Discussions at the meetings serve as subsidy to the monetary authority for the preparation of the quarterly inflation report, expected to be released in March.