Brazil Central Bank sets 2025 inflation target at 3%

The goals for 2023 and 2024 were kept at 2.25% and 3%

Published in 24/06/2022 - 15:51 By Pedro Peduzzi - Brasília

The National Monetary Council (CMN), of Brazil’s Central Bank, has set the inflation target for 2025 at three percent, with a tolerance of 1.5 percentage points up or down. The announcement was made Thursday (Jun 23) by the Ministry of the Economy.

The inflation targets for 2023 and 2024 were kept at 3.25 and three percent respectively, also with a tolerance interval of 1.5 percentage points up or down. This is the value that the National Broad Consumer Price Index (IPCA), which sets Brazil's official inflation, can reach in the coming years. For 2022, the target also continues at 3.5 percent, with the same tolerance interval of 1.5 points.

In a statement, the Ministry of the Economy says that the three percent target in 2025 mitigates uncertainties and expands the capacity of families, companies, and the government to make plans. The target is said to be aligned with financial market expectations for the next three years. "The expectation of future inflation, projected in the most recent Focus readout [survey of financial institutions by the Central Bank] available for the year in question is seen anchored to the inflation target established."

History

Until 2016, the inflation target was set two years in advance, but a decree published in June 2017 stipulated that the definition comes three years earlier. The change aimed to reduce uncertainties and improve the planning capacity of families, businesses, and the government, the Central Bank reported.

Since 2005, the center of the inflation target was 4.5 percent, with a 2.5 point margin of tolerance. In 2006, the interval slipped to two points and remained thus in the following years, until it was brought down to 1.5 points for 2017 and 2018, a range that will now be maintained until 2025.

The inflation target must be pursued by the Central Bank when setting the country's benchmark rate, the Selic. When the Monetary Policy Committee (COPOM) increases the Selic, it does so in a bid to curb heated demand and hold down prices by making credit more expensive and stimulating savings. When it lowers the rate, COPOM makes credit cheaper, encouraging production and consumption.

Translation: Fabrício Ferreira -  Edition: Kleber Sampaio

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