The inflation target and interest rates in Brazil - The Issue #1749

In mid-June, the Monetary Policy Committee (Copom) of the Central Bank (BC) decided on a timid cut in the Selic, which is the basic interest rate: a reduction of 0.25 percentage points. The Copom's unanimous decision reduced the Selic to 14.25% per year and the minutes of the meeting signaled that the cuts could stop there. Setting the interest rate is the tool that the BC has to fulfill one of its duties, which is to pursue the inflation target, currently at 3% per year - this target is defined by a council formed by the Ministries of Finance, Planning and the BC itself. Currently, Brazil has the highest real interest rate in the world - which is the difference between the basic rate and inflation, which is 4.72% in the last 12 months).
In this episode, Natuza Nery promotes a debate with economists André Galhardo and Felipe Salto to answer two main questions: is the 3% per year inflation target viable for Brazil today? And what does the country need to do to be able to live with lower interest rates?
Guests: André Galhardo, chief economist at Análise Econômica, professor and university coordinator of the Economic Sciences course and author of the book 'O Salto do Sapo: a difficult Brazilian race towards economic development'; and Felipe Salto, chief economist at Warren Investimentos, professor at IDP, former secretary of Finance and Planning of the State of São Paulo and former executive director of the Independent Fiscal Institution.
The podcast O Assunto is produced by: Luiz Felipe Silva, Sarah Resende, Carlos Catelan, Luiz Gabriel Franco, Juliene Moretti, Stéphanie Nascimento and Guilherme Gama. Presentation: Natuza Nery.
How the Central Bank monitors the inflation target
What you need to know:
Central Bank admits inflation above the target, but says that 'best practices' recommend not reacting to supply shocks
The balance of risks for inflation is asymmetrical towards the bullish side, BC note in the minutes
BC sees inflation above the target by the end of the year and expects to have to write a new open letter for failing to meet the objective
Dollar drops to R$ 5.17, focusing on inflation in Brazil and the USA; Ibovespa advances
Galípolo admits failure in Copom's communication, but says the BC's role is not to generate consensus in the market
Market raises inflation forecast for 2026 and projects just one more interest cut, to 14% in August
The Topic is the daily podcast produced by g1, available on all audio platforms and YouTube. Since its debut in August 2019, the O Assunto podcast has had more than 168 million downloads across all audio platforms. On YouTube, g1's daily podcast has more than 14.2 million views.
Headquarters of the Central Bank in Brasília
Raphael Ribeiro/BCB

Source: G1