Lula’s economic team denies move to change inflation targets

Speaking at an event on Monday, both Planning Minister Simone Tebet and Finance Secretary Gabriel Galípolo denied that the government was considering changing inflation targets.

At the beginning of the year, President Luiz Inácio Lula da Silva suggested raising the inflation target, which is set at 3.25 percent in 2023 and 3 percent for the next two years, as that the government is unlikely to meet the existing goals. The market’s median year-end inflation forecast for 2023 is 5.93 percent.

The National Monetary Council (CMN) is responsible for setting inflation targets in Brazil. The council, which meets monthly, is made up of Ms. Tebet, Finance Minister Fernando Haddad, and Central Bank chairman Roberto Campos Neto. With two of the three seats, the government has the power to change targets if it wishes. Doing so, however, would further erode investor confidence in the newly formed government.

Discussions on the inflation target for 2026 and the review of those already set are expected to take place in June.

Last week, the Central Bank kept Brazil’s benchmark interest rate at 13.75 percent. The monetary authority did not signal the possibility of short-term cuts. Rather, the bank left open the possibility of raising rates if inflation does not come down in a sustainable way. 

The issue of interest rates has sparked a war of words between the government and the Central Bank. Nevertheless, Lula has reportedly chosen two market-friendly names to recently vacated seats on the bank’s board of governors. Both nominations, once formalized, will need approval from the Senate.

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