Brasilia (Reuters) – The Banco Central will release an open letter in January when the overshoot of the 2024 inflation target confirmed, the municipality informed the Reuters. The BC already foresees the chance to repeat the attitude in July, given its current projections for consumer prices.
When, the monetary authority had already predicted inflation of 4.9% this year – above the official target of 3%, with a tolerance margin of 1.5 percentage points more or less.
In its Quarterly Inflation Report last week, the BC reported that, given the estimate, for 2024, mainly due to “exchange rate depreciation, the strong pace of growth in economic activity and climatic factors or factors related to the cattle cycle, in a context of unanchored inflation expectations and inflation inertia from the previous year”.
The letter prepared by the monetary authority will be presented to the Minister of Finance, Fernando Haddad, explaining the reasons for not meeting the target after the release by IBGE of the official inflation for 2024, scheduled for January 10th, said the authority.
From 2025 onwards, the assessment of compliance with the target on a continuous horizon will come into effect in Brazil, and no longer in the calendar year as it has been until now.
The new rules, which come into effect from January, stipulate that an open letter and a note in the Monetary Policy Report (formerly the Quarterly Inflation Report) will be produced if 12-month accumulated inflation remains outside the tolerance range for six consecutive months. .
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As the BC estimated last week that annual inflation in June next year will be 5.0%, the new president of the monetary authority who takes over in 2025, Gabriel Galípolo, may have to write a new letter, as early as July, about yet another explosion, this time under the new inflation target verification system.
Market expectations for price developments in the country also point to breaches of the upper limit of the target, with inflation remaining at 4.91% in 2024 and remaining above the target ceiling at least until the end of next year, according to BC’s most recent Focus survey.
If the letter is produced in July, in addition to the causes and measures necessary to ensure the convergence of inflation within the target limits, the BC will have to stipulate the expected deadline for these actions to take effect.
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Based on this definition, a new communication will only be made by the authority if inflation does not return to the target range within the stipulated time or if the BC deems it necessary to update the measures or deadline.
In Brazil’s 25 years, the objective has been missed in seven cases so far: in 2022, 2021, 2017, 2015, 2003, 2002 and 2001.
