January 11, 2023 12:41 GMT
BCB Letter Potentially Reinforces Higher For Longer For Thesis
- BCB President Roberto Campos Neto wrote the mandatory letter to the Finance Ministry on Tuesday explaining why 2022 inflation at 5.79% failed to stay within bank’s 2%-5% target range and detailing what is being done to prevent it from happening again in 2023.
- Campos Neto said policymakers continue to assess the effect of current monetary policy and whether holding the key rate at a six-year high for a “sufficiently long period” can bring annual inflation back to target.
- He also said officials see annual inflation breaching their 3.25% year-end goal for 2023 as the effect of recent tax cuts to gasoline prices dissipate. As the effect of these cuts roll off, most analysts see annual inflation running above target through 2025. Service costs keep rising and core measures that strip out the most volatile items remain high.
- The central bank chief warned that the “credibility” of achieving a sustainable debt path is “decisive” for the country’s fiscal outlook. He also reiterated that changes to the country’s economic framework can “reduce the power” of monetary policy. (BBG)