Brazil Inflation Target Remains Elusive Even for Dream Team

Mario Sergio Lima – Bloomberg, 06/28/2016

Brazil’s central bank projected inflation above the official target in 2017 and said there is no room to ease monetary policy before budget cuts are in place. Short-dated swap rates rose.

Consumer prices will rise 4.7 percent next year, still above the target set by the government, the central bank said in its quarterly inflation report on Tuesday. Inflation is seen slowing below the official target of 4.5 percent only in the first quarter of 2018, underscoring the challenges that lie ahead for new central bank chief Ilan Goldfajn and Finance Minister Henrique Meirelles, who has assembled a “dream team” of economic experts according to Goldman Sachs.

Brazil has failed to meet its inflation target for the past six years. Goldfajn, who will preside over the central bank’s interest rate decision for the first time in July, still faces annual price increases of nearly double the government’s target. Policymakers said it is premature to cut the benchmark Selic rate, citing the need for further fiscal adjustment and unfavorable climate impacting global food production.

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