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New ongoing framework in Brazil targets 3% inflation.

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image credit:DW

President Luiz Inacio Lula da Silva signed a decree on Wednesday setting a continuous inflation objective beginning in 2025 with quarterly central bank accountability.
National Monetary Council (CMN), the country’s primary economic policy authority, sets the aim under the edict. In a Wednesday meeting, the CMN reaffirmed the 3% aim with a 1.5 percentage point buffer.
After socialist Lula criticized the target level last year, saying it was too low and necessitated tight monetary policy, hurting the economy, the decision was made.
In June 2023, his administration indicated that the 3% objective would continue, but a presidential order was needed to formalize the new method.
Finance Minister Fernando Haddad said it was important to focus on the government’s decisions, not the debates, and that Lula’s commitment to the target was made clear last year.
Lula’s economic team suggests following inflation objectives over a longer period to absorb price shocks without monetary tightening.
Wall Street’s major indexes closed unchanged on Thursday ahead of the presidential debate and a day before inflation data.

Beginning in January, the decree will consider the aim missed if annual inflation deviates for six consecutive months from the tolerance interval.
The central bank will write to the finance minister in an open letter describing the reasons, the steps needed to lower inflation, and their estimated timing.

The decree also requires the central bank to produce a quarterly monetary policy report “which will include the performance of the new inflation target framework, the results of past monetary policy decisions, and the prospective assessment of inflation.”
A year ago, the presidential order changed the inflation objective assessment timeline.
The Finance Ministry said the new regime anchors inflation expectations in longer timeframes and underlines the country’s commitment to low and stable inflation.
Target adjustments must now be communicated 36 months in advance.
Lula stated on Wednesday that he is not yet considering whether Gabriel Galipolo would lead the central bank once Roberto Campos Neto’s tenure as governor expires in December.
Lula, in his third non-consecutive term, said the central bank’s authority has always been respected, but he criticized the 10.5% benchmark interest rate given 4% inflation.


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