Brazil likely to lower inflation target for first time in more than a decade: Reuters Poll – Metro US

Brazil likely to lower inflation target for first time in more than a decade: Reuters Poll

Brazil likely to lower inflation target for first time in more than a decade:
By Silvio Cascione

By Silvio Cascione

BRASILIA (Reuters) – Brazil will probably reduce its inflation target this year for the first time in more than a decade to avoid another bout of price rises as the economy recovers from a harsh recession, a Reuters poll of economists showed.

The government is due to announce its inflation target for 2019 by the end of June. Twelve of 20 economists surveyed expect that figure to drop from the 4.5 percent in place for 2017 and 2018.

The National Monetary Council usually sets the inflation target two years in advance because monetary policy has a delayed effect on prices. The council, Brazil’s highest economic policymaking body, consists of the heads of the Finance Ministry, the Planning Ministry and the central bank.

Economists say a stronger commitment to low inflation could boost Brazil’s long-term growth prospects by reducing investors’ uncertainty.

“This is a debate that will strengthen inside and outside the government,” said Santander economist Tatiana Pinheiro. “And that discussion makes sense because the target acts as an anchor for expectations.”

While increasing confidence in an economy pummeled by its worst recession ever, a lower target could also limit the central bank’s ability to cut interest rates dramatically.

Ten of the 12 economists who see a lower target for 2019 expect it to be set at 4.0 percent.

One economist forecast a 4.25 percent goal, and another put it at 3.0 percent, in line with the inflation targets of other Latin American countries, such as Mexico and Chile.

Brazil’s government has not yet decided on the 2019 target and does not plan to start that discussion at this time, central bank Governor Ilan Goldfajn said on Thursday.

Poll respondents include some of Brazil’s largest banks and research firms that feature top forecasters in central bank and Reuters polls. They agreed to participate on condition of anonymity because most banks do not publish forecasts for the inflation target.

The inflation rate fell in mid-January to below 6 percent for the first time in nearly three years, from more than 10 percent at the beginning of 2016.

Economists expect it to slow to 4.5 percent by the second quarter, just when the National Monetary Council convenes to decide on the 2019 target.

One of the economists in the poll, from a large Brazilian bank, said the government could also change its goal for 2017 and 2018 by targeting core inflation, which strips out volatile items such as food prices, instead of the main rate.

Brazil began targeting inflation in 1999. The current 4.5 percent goal was first adopted for 2005, originally with a tolerance margin of plus or minus 2.5 percentage points. The current range is plus or minus 1.5 percentage points.

(Reporting by Silvio Cascione; Editing by Daniel Flynn and Lisa Von Ahn)