RIO DE JANEIRO, BRAZIL – The president of Brazil’s Central Bank, Roberto Campos Neto, said monetary policymakers are aiming for inflation below 4% in 2023 to bring it toward their 3.25% target.
“For us, around the target means less than 4%,” he said at an online press conference on Thursday, June 23, clarifying language in the statement that accompanied last week’s interest rate decision.
“If it’s 4%, then we understand we must act. We don’t have an exact number. It’s part of a strategy.”
In just over a year, Brazil’s monetary policymakers have been forced by persistent price shocks to extend a tightening cycle that has added 11.25 percentage points to credit costs.
Still, annual inflation has remained above 10% since September, thanks to firmer consumption and rising global commodity costs.
Bank officials have said they expect their rate hikes to substantially affect the economy starting in the second half of this year.
Most analysts expect consumer prices to rise 8.5% this year, and 4.7% next year, above the respective targets of 3.5% and 3.25%.
Last week, state-owned oil company Petróleo Brasileiro SA (Petrobras) raised gasoline and diesel prices, pushing up revisions to year-end inflation estimates.
Bank board members are focused on next year’s target, Campos Neto said, adding that 2024 has not yet been considered on their policy horizon.
HIGHER RATES FOR LONGER
Brazil’s Central Bank raised rates to 13.25% on June 15, aiming for another increase of 50 basis points or less in August.
Many economists are betting that borrowing costs could reach 14% and remain double-digit next year.
The strategy of monetary policymakers is to keep the benchmark Selic rate at a higher level for longer to ensure inflation returns to target, Central Bank Economic Policy Director Diogo Guillen said at the same press conference.
The rising cost of living has become a major obstacle to President Jair Bolsonaro’s re-election in October.
Bolsonaro, in second place in the polls, has pledged to investigate Petrobras and proposed measures to reduce fuel taxes. He is now evaluating increasing cash handouts to the poor.
Monetary policymakers have said fuel tax cuts are likely to cool inflation this year and boost it in 2023 but will not incorporate the impact of such measures into their projections until they take effect.
On Thursday, the central bank also raised its estimate for economic growth in 2022 to 1.7% from 1%, citing a stronger-than-expected first quarter, including a boost from exports and household consumption.
With information from Bloomberg
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