New decree changes Brazil’s inflation target system
The Luiz Inácio Lula da Silva administration finally published a decree establishing a continuous time frame for inflation targets. The change had been telegraphed a year ago by the National Monetary Council (CMN), which is responsible for defining the country’s annual targets.
Starting in 2025, the current calendar year format will be replaced by a rolling 12-month target, which means that instead of setting annual inflation targets that must be met each calendar year, the monetary authority should pursue its price goals within a “continuous” time frame.
The official target was set at 3 percent for 2024, 2025, and 2026, with a tolerance band of 1.5 percentage points. The CMN meets today and is set to vote on the target for 2027.
If 3 percent is the target, the Central Bank will modulate its interest rate policy accordingly. In other words, taking a longer-term approach — as other countries already do — would allow more room to accommodate price shocks within a less hawkish monetary policy.
Finance Minister Fernando Haddad — who is part of the CMN alongside Planning Minister Simone Tibet and Central Bank Chairman Roberto Campos Neto — says the new approach provides more space to accommodate price shocks without requiring monetary tightening.
According to the decree, the target will be considered missed if inflation accumulated over a year remains outside the permitted range for six consecutive months. In this case, the Central Bank will have to explain in a letter to the finance minister the reasons for not meeting the target and the measures that must be taken to achieve it.
Also from 2025 onwards, the Central Bank will replace its quarterly Inflation Report with a Monetary Policy Report, which will address the situation with inflation targets, explain past monetary decisions, and disclose its future projections.
The post New decree changes Brazil’s inflation target system appeared first on The Brazilian Report.