By Victor Borges and Marcela Ayres
BRASILIA (Reuters) -Brazil's National Monetary Council (CMN), the country's top economic policy body, decided on Thursday to set its 2026 inflation target at 3% and tweak the time frame to assess the inflation goal's fulfillment, confirming market expectations on both fronts.
Currently, the CMN sets annual inflation targets that must be met each calendar year.
Speaking at a press conference, Finance Minister Fernando Haddad said that from 2025 this model would shift to a continuous horizon, which in practice will imply a 24-month period to assess the target compliance.
For this measure to take effect, the president will sign a decree about it, the minister said.
Alberto Ramos, an economist at Goldman Sachs (NYSE:GS), described the new time frame as excessively long but predicted the market would react positively to the decisions, with slightly improved inflation expectations from 2024 to 2026 paving the way for the central bank to embark on an easing cycle.
Haddad had previously said he favored pursuing inflation targets within a "continuous" time frame, arguing a longer-term approach provides more room to accommodate price shocks without requiring monetary tightening.
The central bank currently targets inflation of 3.25% in 2023 and 3% in 2024 and 2025, with a tolerance margin of 1.5 percentage points up or down, which was maintained for 2026.
This compares with inflation of 3.4% in the 12 months through mid-June and private economists' expectations of inflation reaching 5.06% this year, 3.98% in 2024, 3.80% in 2025, and 3.72% in 2026.
Earlier on Thursday, central bank governor Roberto Campos Neto also said he supported the time frame change, calling it an "interesting improvement".
Campos Neto argued that in the past the government has taken measures specifically aimed at aligning the official inflation index to targets in a given calendar year, which was "bad" and implied less smooth monetary cycles.
The CMN comprises the finance minister, the planning minister and the central bank governor.
President Luiz Inacio Lula da Silva has often criticized the independent central bank for keeping interest rates at 13.75% despite a steep decline in inflation. He has also called for higher inflation targets to enable monetary policy easing. Those appeals, which he has not made for a few months, had served to worsen expectations for inflation.
In the minutes from its latest policy decision, the central bank said that most policymakers see room for cautious monetary easing in August if an improved scenario for inflation materializes, signaling that maintaining the inflation target at 3% for the coming years would be important for this purpose.