Inflation: Itaú expects BC to approve rules for target – 06/28/2023 – Market

The maintenance of a 3% inflation target by the CMN (National Monetary Council), with the replacement of the 12-month benchmark for a continuous period, may help to improve expectations for the IPCA (official inflation) and allow the Bank to Central to start the process of cutting interest rates, according to the chief economist at Itaú-Unibanco, Mario Mesquita.

The change in the target calculation period is a point that has been defended by Minister Fernando Haddad (Finance) and is in line with international practice. With that, it will be up to the BC to technically assess the inflation convergence period and provide clarifications to society.

The CMN, which brings together ministers Fernando Haddad (Finance) and Simone Tebet (Planning), in addition to BC President Roberto Campos Neto, will meet this Thursday (29) to discuss the inflation target until 2026.

Currently, the targets are 3.25% this year and 3% in 2024 and 2025, with tolerance intervals of plus or minus 1.5 percentage points.

“We work with the hypothesis of a permanent target of 3%, without expanding the bands. It will be good news, if confirmed, reinforcing the idea that there is an aversion of Brazilian society to inflation”, says Mesquita, citing that the 3% is also the goal pursued by countries like Chile, Mexico and Colombia.

According to Mesquita, the end of the calendar year is a simplification that facilitates society’s understanding of the target system. He says that Brazil was one of the first emerging countries to adopt the regime that uses the basic rate to keep the price index within a certain level, but it will be the last to reach the permanent target.

“This will help to contain inflation expectations, and help the Central Bank to start a process of flexibility”, said the economist, recalling that the monetary authority signaled this Tuesday (27) that it should start cutting interest rates at the next Copom meeting (Monetary Policy Committee) in August.

Itaú projects two reductions of 0.25 points in the basic rate, currently at 13.75% per year, followed by cuts of 0.50 points. With that, the Selic would end 2023 at 12.25% and 2024 at 10%.

The bank projects inflation of 5.3% this year and 4.4% in 2024. Luciana Rabelo, an economist at the institution, says that services are putting pressure on price indices this year.

“We still have a resilient labor market, readjustments [salariais] above inflation. This hinders a stronger disinflation of these services”, says Rabelo.