Brazil’s economic team is considering an early review of the country’s inflation targets in an attempt to defuse tensions between the central bank and President Luiz Inacio Lula da Silva, who has been publicly pushing for higher goals and lower interest rates, according to two government officials with knowledge of the matter.
(Bloomberg) — Brazil’s economic team is considering an early review of the country’s inflation targets in an attempt to defuse tensions between the central bank and President Luiz Inacio Lula da Silva, who has been publicly pushing for higher goals and lower interest rates, according to two government officials with knowledge of the matter.
The national monetary council, the government body responsible for setting such targets, traditionally holds a discussion about the subject in June, when it was expected to define a goal for 2026.
But Lula’s growing complaints that 13.75% interest rates are choking the economy have some members of the economic team trying to bring forward a discussion to possibly increase the goals, currently set at 3.25% for 2023 and 3% for the next two years, said the people, who asked for anonymity because the discussion isn’t public.
Central bank chief Roberto Campos Neto would be in favor of a higher target, the officials said. He has a seat at the council, together with the finance and planning ministers. The council’s next meeting is scheduled for Feb. 16.
The central bank declined to comment. The finance minister said the national monetary council does not publish issues it will discuss in advance, only after a decision is made. The planning ministry didn’t immediately respond to a request for comment.
The Brazilian real erased early gains and weakened as much as 0.7% after the report to become the worst-performing emerging-market currency. Long-dated swap rates extended gains, with contracts maturing in January 2027 rising 13 basis points at 11:28 a.m. local time.
Why Lula Is Clashing With Brazil’s Central Bank: QuickTake
Lula, faced with a weakening economy that threatens his ability to deliver on campaign pledges, has stepped up criticism of the central bank over the past few weeks. He has questioned a law that gave the bank its long-sought autonomy in 2021, and called on businesspeople to join him in protesting the level of interest rates.
In a TV interview on Jan. 18, the president said the ideal inflation target for an emerging-market country such as Brazil is 4.5%, the same that was in effect during his previous two terms. Even if it agrees to increase the inflation goal, it’s unlikely that the monetary council would go as far as set a 4.5% target again as such a level would contribute to the indexation in Brazil’s economy, one of the people said.
One the other hand, a slightly higher inflation target would allow the central bank to start cutting interest rates faster, the people said. The monetary authority has said it will keep the benchmark Selic rate at its current level until inflation expectations return to targets.
–With assistance from Maria Eloisa Capurro and Vinícius Andrade.
(Updates with market reaction in sixth paragraph.)
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