MercoPress. South Atlantic News Agency

Brazil: Inflation and GDP projections up from March figures

“The relevant horizon is 2023,” Campos Neto explained

Brazil's Central Bank (BCB) Thursday announced it projected a 1.7% increase in the country's Gross Domestic Product (GDP) by the end of 2022, thus improving a previous forecast released in March, which mentioned merely 1%.

BCB's Economic Policy Director Diogo Abry Guillen released the new figures during a press conference attended by BCB CEO Roberto Campos Neto. The GDP shows the sum of all goods and services produced in the country.

The new announcement was a preview of the quarterly inflation report, which is to be disclosed on June 30 after postponements owing to a Central Bank employees' strike.

According to the BCB, there are expectations of “cooling activity in the second half of the year” due to the cumulative effects of monetary tightening; the persistence of supply shocks; and government cash handouts to families for the first half.

The Central Bank also increased its projections for inflation over the next three years. For 2022, the projected Broad National Consumer Price Index (IPCA) went from 6.3% in March to 8.8%.

The National Monetary Council (CMN) had set for this year a target of 3.5%, with a tolerance margin of plus/minus 1.5 percentage points.

For 2023, with the target at 3.25%, the Central Bank already projects inflation at 4%, from 3.1% published in March. For 2024, a year in which the target set by the CMN is 3%, projections went up from 2.3% to 2.7%.

Regarding the link between inflation and stability, Campos Neto said he was also working with a “secondary goal of smoothing, looking a little at the balance of everything we have done and the balance of risks that exist today, and how this influences future decisions.”

“We have communicated that we are chasing a number. And we've been saying it's not 4%. It's less than 4% [in 2023]. Obviously, all the trade-offs between interest rate hikes and smoothing the cycle-understanding where the interest rate has to come and also understanding the trade-offs between the rate hike and the terminal rate, and how much the rate has to stay at the terminal level..., all of that is taken into consideration,” he went on.

“The relevant horizon is 2023, and the around target is below 4%. Of course, if it gets to 4% we will have to act, but a variation of +0.1 or +0.2, to one side or the other in this uncertain environment, does not have such a positive expected value. It is clearer to outline a strategy, look at a relevant horizon term and outline a strategy,” he added.

(Source: Agencia Brasil)