They discussed the new continuous inflation target; the director of Monetary Policy at the Central Bank was appointed by the PT member
The president Luiz Inácio Lula da Silva (PT) received this Tuesday (June 25, 2024) the director of Monetary Policy of the B.C. (Central Bank), Gabriel Galípolo, at Palácio do Planalto, in Brasília, to discuss the country’s inflation target and the regulation of the continuous target system, which should be released on Wednesday (June 26). The Minister of Finance, Fernando Haddadalso participated in the meeting.
In June 2023, the CMN (National Monetary Council) defined a change in the target regime to a continuous system from 2025. Next year, the target is 3%, with a tolerance of up to 4.5%.
In May, Haddad said that the 3% inflation target is “very demanding” It is “unthinkable”.
The council will meet again on Wednesday (June 26) and should announce after the meeting what the government’s timetable should be to achieve the defined goal. In addition to disclosing what the inflation target should be for 2027.
The CMN must maintain the target at 3% on an ongoing basis. The possible maintenance of the inflation target comes at a time when there is distrust in the financial market towards Lula’s economic team. Suspicion arises especially for 2 reasons:
- demand for cost-cutting measures to balance public accounts;
- concern about the possible appointment of a name that is more tolerant of rising prices and the loosening of monetary policy to take command of the Central Bank in 2025.
According to Haddad, there was a “makeup” in 2022 to reduce inflation. He said that the reduction in ICMS (Tax on Circulation of Goods and Services) on fuels would increase official inflation from 5.79% to 8.23% or 8.25%.
Lula and Copom
Galípolo was appointed to the BC by Lula, but voted against the president’s wishes at the last Copom (Monetary Policy Committee) meeting on the basic interest rate, the Selic.
The Central Bank decided on Wednesday (June 19) to maintain the base rate at 10.5% per year. The monetary authority interrupted cuts in base interest rates despite criticism from the president and political allies.
The Copom decision – made up of BC directors – was unanimous. Lula appointed 4 members to the board, including Galípolo, who is the most likely to be the BC president when Roberto Campos Neto leaves in December 2024.
Despite Lula’s criticism, the 4 members voted to maintain the Selic rate at 10.5% per year. Government officials complained about the Central Bank’s decision.
The federal deputy Lindbergh Farias (PT-RJ) classified the decision as “shameful” and said that the 4 directors appointed by the Lula government must have felt “shy of market pressure” to support rate maintenance.
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