Bloomberg Línea — The president of Brazil’s central bank, Roberto Campos Neto, said that he is open to dialogue with government representatives, including President Lula, as well as congressmen, on interest rates and other matters, but expressed the assessment that the increase targeting inflation at this point would have the opposite of the desired effect, possibly leading to higher price expectations.
The statements were made on Monday in an interview with the program Roda Viva, on TV Cultura, recorded in the late afternoon and broadcasted at the end of the night.
Questioned about the issue that has been placed at the center of public debate by President Lula in recent days, the change in the inflation target, Campos Neto said that a change at this time would have the opposite effect of what the government wanted.
“If we make a change towards gaining flexibility [in fighting inflation], the practical effect will be the opposite, we will lose flexibility”, said Campos Neto.
Currently, the inflation target is set at 3.25% in 2023 and 3.00% in 2024, with a tolerance margin of plus or minus 1.5 percentage points.
“There is a group of economists who believe in the inflation system and who are a bit divided. There is a group that says that this target is really low, that American inflation has risen and we need to understand that it has become very difficult to reach this target because it was defined at a time when world inflation was low when it was believed that the pandemic would deflate,” he said.
“And there is another group that says that if you raise the target at a time like this when expectations are a little off anchor, economists and analysts will project a target equal to the new one, but, as it was raised at a time when it is not being reached, an even higher risk premium will be demanded. Not only do you not gain, but you will lose flexibility. Today I am in this second group”, said the president of the Central Bank on the subject.
The definition of the inflation target is made by the National Monetary Council (CMN), made up of the Minister of Finance (Fernando Haddad), the President of the Central Bank, and the Minister of Planning (Simone Tebet).
The meeting that will discuss the 2025 target and the possible revision of the target for this year and 2024 in theory would take place in June, but the government defends anticipating this debate and the change.