June 25, 2020 / 9:52 PM / 18 days ago

UPDATE 1-Brazil sets 2023 inflation target at 3.25%

(Adds details)

By Gabriel Ponte and Jamie McGeever

BRASILIA, June 25 (Reuters) - Brazil’s National Monetary Council, the country’s highest economic policy body, on Thursday set the central bank’s 2023 inflation target at 3.25%, with a tolerance margin of 1.5 percentage points on either side.

The council, which includes the economy minister and central bank president, once again set the target 25 basis points lower than the previous year’s goal, a trend that has been in place since 2017, the Economy Ministry said in a statement.

“The fluctuation in inflation expectations has fallen substantially with falling targets,” the ministry said.

“This shows that monetary policy and, therefore, the target are credible, eliminating any possible costs of reducing the target,” it said.

The COVID-19 pandemic’s hit to the economy is “highly disinflationary”, so reducing the 2023 target does not imply any additional shocks, the ministry said. The government’s commitment to fiscal reforms and its spending cap rule will also minimize inflation risks, it added.

Annual inflation is currently under 2%, not only below the central bank’s 4% target for this year but also below the 2.5% floor allowed for by the 1.5 percentage point margin of error.

According to its own scenarios, the central bank sees inflation next year coming in around 3%-3.2%, also below target.

Central bank president Roberto Campos Neto earlier on Thursday denied that the bank has abandoned its inflation goals. Asked whether policymakers’ commitment to them had eased so as not to push interest rates much closer to the so-called “lower bound,” he replied “not at all.” (Reporting by Gabriel Ponte and Jamie McGeever Editing by Alistair Bell)

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