Read this Friday’s edition of the FolhaMercado newsletter (30) – 06/30/2023 – Market

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new target system

Brazil will have a new inflation targeting system starting in 2025. The announcement was made this Thursday (29) by ministers Fernando Haddad (Finance) and Simone Tebet (Planning and Budget).

Understand: in a year and a half, the BC will have to pursue its objective on an ongoing basis, and no longer annually, as it is today. The decision was expected by the market, which sees the monetary authority already acting in this way in practice.

According to Haddad, the change starts to take effect from 2025 because that is when the mandate of the current president of the BC, Campos Neto, ends.

Earlier, the head of the municipality had said that the improvement of the system is “interesting”. Haddad, however, stated that the issue was not taken to the CMN (National Monetary Council), where Campos Neto has a vote, because it was a “government” decision.

The only decision by the CMN, which also has the votes of Haddad and Tebet, was to set the 2026 inflation target at 3% – as required by the current rule.

How it is:

• Since 1999, the BC has sought to meet an accumulated inflation target from January to December, which is defined in advance by the CMN.

• If the year’s inflation is below or above the target and the tolerance interval (today at 1.5 percentage points), the BC president details in an open letter how the problem should be resolved.

How will it look:

• BC will start to target a goal always looking forward.

• The 3% target will be considered fulfilled if the indicator stays between 1.5% and 4.5% (considering the tolerance interval of 1.5 percentage points more or less).

What remains to be defined:

• The deadline for bringing inflation to the target – other countries usually adopt the 24-month horizon (we show how it works here).

• The accountability format (such as the open letter, which will no longer exist).

Opinion | Vinicius Torres Freire: After much foolish noise, Lula 3 sets reasonable economic targets.

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China and Russia on Bolivia’s Lithium

China allied with Russia to close two billionaire contracts for lithium exploration in Bolivia, a country that has the largest reserves of the mineral in the world, a large part of which has yet to be extracted.

In numbers: Russian state nuclear power company Rosatom and Chinese private company Citic Cuoan Group will invest $1.4 billion (R$ 6.8 billion) for the production of lithium carbonate — 100 thousand tons per year of the input from 2025.

• In January, Chinese battery maker CATL had sealed a $1 billion (R$ 4.9 billion) to produce 25 thousand tons of lithium carbonate per year in the country.

• In all cases, the local state company is part of the partnership with the foreign partners.

Understand: Lithium is a very important raw material in the context of the energy transition. It is present in lithium-ion batteries used in electric cars and is essential for expanding energy storage in other systems.

One example is renewable generation. By storing the energy generated by solar and wind sources, lithium batteries guarantee a constant supply, not just when there is sun or wind – something essential for China, a country still dependent on coal.

Why it matters: the dispute over lithium in Latin America is the new frontier of the geopolitical duel between the two global powers.

• China, which produces about three-quarters of the world’s lithium-ion batteries, has partnered with Latin American countries to produce supplies locally.

• The US, upon seeing the advancement of its rival in the region, is trying to make up for the loss by prioritizing a plan to form a mineral supply chain for its companies.

Lithium Triangle: This is the name given to the region between Bolivia, Chile and Argentina, which holds 61% of the mineral reserves on the planet.

• In production numbers, however, Australia led the market last year, with 47%, followed by Chile (30%) and China (15%).

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