‘Wrong’, ‘unreachable’, ‘unrealistic’: managers question inflation target – 02/15/2023 – Market

In an event promoted by BTG Pactual this Wednesday (15), three leading names in resource management stated that it is necessary to revise the current inflation target so that it is possible to reduce interest rates.

For 2023, the target is 3.25%, with a tolerance margin of plus or minus 1.5 points. For 2024 and 2025, the established threshold is 3%.

“The discussion is reasonable”, says Luis Stuhlberger, from Verde Asset. “Searching for an unrealistic target is not a good thing for Brazil. I agree that it has to have a credible fiscal framework, the two together can make Brazil a better place.” For the manager, the damage caused by wrong policies is the country’s problem.

“In the last two years of Bolsonaro’s government there has been an involution. May we have presidents and ministers who are statesmen, who think about measures that will be good for Brazil in the long term”, said Stuhlberger, applauded by the audience.

Rogério Xavier, founding partner of SPX Capital, questioned why another inflation target was not considered, especially after the crisis generated by Covid, adaptation to clean energy and changes in the production chain.

For him, economists are reticent to correct an error. “Why pursue a goal that is unattainable?”

“We only reached 3% inflation once, in 2016. Now that we’ve gone through all these inflationary situations, Brazil decided to set the target at 3%. In the US, the target is 3.5% and in Brazil it will be 3%? It’s a lack of common sense,” he said.

“What’s the use of picking up 3.25% and delivering 6%?”, he says.

“People in supermarkets live with inflation of 10%, 12%. It’s another reality. I think that the cost of carrying a target of that size is gigantic, whether financial, social or political, because, once you don’t reach the targets, the Central Bank is restrictive in monetary policy,” said Xavier.

“The goal is wrong”, says André Jakurski, from JGP. The manager called the goal a “silver bullet” at the time and said he thought it was more important to first define the fiscal rule that will replace the spending ceiling instead of “chasing” the current inflation target.

“I think the goal should be changed and interest rates lower. Brazil will not work with these interest rates”, he says.

Markets have reacted negatively to rumors of an eventual increase in the target by the government. The issue has provoked a clash between President Luís Inácio Lula da Silva (PT), who says that the target is too low, and the Central Bank.

This Monday (13), the president of the Central Bank, Roberto Campos Neto, said that the monetary authority disagrees with a change in inflation targets and that a review of the targets to be pursued by the institution at this time would have the opposite effect to that desired on the fees.

The Minister of Finance, Fernando Haddad, stated that there are no plans to discuss a change in the target at the CMN (National Monetary Council) meeting this Thursday (16).

Present at the BTG Pactual event, Haddad stated that he understands the financial market’s anxiety and that he is in favor of demanding targets, both for fiscal and monetary policy, but stressed that they need to be “humanly achievable”.