After five consecutive increases, inflation expectations came slightly closer to the target of 3.25 percent in 2023 and 3 percent in 2024, according to the Central Bank of Brazil’s Focus Report — a weekly survey of the country’s leading banks and asset managers.
Expectations for inflation in 2023 fell from 6.05 to 6.02 percent, while projections for 2024 fell from 4.18 to 4.16 percent.
The latest Focus Report may stir up the interest rate pot in Brazil. The political left has become increasingly vocal in its criticism of the Central Bank’s hawkish monetary policy, especially since Roberto Campos Neto was appointed central banker by the previous far-right Jair Bolsonaro government.
Brazil’s Central Bank left the country’s benchmark interest rate unchanged at 13.75 percent per annum last week. And it told markets that its restrictive monetary policy will remain in place for the foreseeable future.
Last Saturday, President Luiz Inácio Lula da Silva accused Mr. Campos Neto of not being committed to Brazil, “but to the Bolsonaro administration” and “to those who like a high interest rate.” In addition, Lula said that Brazil’s central banker is ignoring the federal government’s concerns.
The president compared Mr. Campos Neto’s work to that of Henrique Meirelles, an orthodox central banker who led the monetary authority during Lula’s first two presidential terms (2003-2010), arguing that Mr. Meirelles had the autonomy to work and also the responsibility to discuss his decisions with the government.
In a speech last week on Labor Day, Lula linked the current 8.8 percent unemployment to the benchmark interest rate. “We can no longer live in a country where the interest rate does not control inflation, but controls unemployment and is responsible for part of the [low growth and high debt] situation we are experiencing today,” he said.
For some economists, the Central Bank showed a less rigid stance in its latest policy statement, saying surprises in the disinflation process are “less likely” to occur.
“This section was not in the previous communications. I understand that this could already be a sign that the Central Bank intends to lower interest rates,” says Rafael Pacheco, an economist at brokerage Guide Investimentos. On Tuesday, the Central Bank will release the minutes of last week’s meeting.
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