Roberto Campos Neto will need time to return the IPCA to the inflation target, his main mandate. The most recent forecasts for the 2023 IPCA are around 5.5%, far from the 3.25% target and outside the index’s accommodation band of 4.75%. To meet its objective, the BC would have to raise the interest rate, which is already at 13.75% per annum. Today, such a sharp reduction in the inflation index by December is not only improbable, but practically impossible to happen.
The risk of uncontrolled public accounts and the effects of excessive spending this year has been highlighted by the monetary authority for months. While the Monetary Policy Committee tightens interest rates to hold down inflation, the federal government releases public coffers, increasing pressure on prices.
The 2022 IPCA result corroborated expectations of still high inflation and far from the target. The index was 5.79% when the objective was 3.50%, with a tolerance ceiling of 5%. The only prices that had a reduction were those affected by the fall in federal and state taxes. Free prices, formed by the balance between supply and demand, rose 11% in 2022, including food and services provided to families.
Under the rules of the target system adopted in Brazil, the Central Bank must send an open letter to the Minister of Economy to explain the reason for non-compliance, and what it intends to do to ensure convergence in the current year. In the document that will be published this Tuesday, BC directors will have to present the risks and scenarios mapped for controlling the inflationary process in a longer term than December 2023.
In the official communication it maintains with society, the Copom has been emphasizing that it takes decisions on interest rates already looking to the first quarter of 2024, when the collegiate expects the IPCA to come closer to the 3% target for next year. Even so, the calendar of the rules of the Brazilian system does not accommodate deviations in time for the achievement of the target.
So far, the BC’s credibility is not at stake because the sequence of shocks that caused prices to rise was beyond the control of any central bank in the world. Even so, Roberto Campos Neto needs to establish the perception of his work as a guide for the stability of the country’s currency.
Source: CNN Brasil
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