The Central Bank (BC) has projected, for 2022, a 1.7% increase in gross domestic product (GDP), the sum of all goods and services produced in the country. The previous forecast, released in March, was for growth of 1%. The review was presented today (23) by the director of Economic Policy of the BC, Diogo Abry Guillen, in a press conference that was attended by the president of the BC, Roberto Campos Neto.
The announcement was a preview of the quarterly inflation report, postponed to the 30th, due to the strike of the agency’s servers.
According to a note from the BC, there is an expectation of “cooling down of activity in the second half of the year” as a result of “the cumulative effects of the monetary tightening; the persistence of supply shocks; and government anticipations to families for the first semester”.
Guillen cites as the main components of domestic demand the rise in household consumption and the decline in investments (Gross Fixed Capital Formation – GFCF).
Inflation
The BC increased its projections for inflation over the next three years. For 2022, the National Consumer Price Index (IPCA) projected increased from 6.3%, forecast in March, to 8.8%, in this June projection. The center of the target set by the National Monetary Council (CMN) for this year is 3.5%, with a tolerance margin of 1.5 percentage points up or down.
For 2023, the year in which the target is 3.25%, the BC projects inflation of 4%, compared to 3.1% announced in March. As for 2024, the year in which the target set by the CMN is at 3%, the projections went from 2.3% to 2.7%.
Credibility
Asked if the credibility of the inflation targeting system could be affected, in the midst of the uncertainties, BC President Roberto Campos Neto said he also works with a “secondary smoothing target, looking a little at the balance of everything we have done and the balance of risks that exists today, and how this influences future decisions”.
“We have communicated that we are chasing a number around. And we’ve said it’s not 4%. It’s less than 4% [em 2023]. Obviously, all trade-offs between rising interest rates and smoothing the cycle – understanding where the interest rate has to go and also understanding the trade-offs between the rate of rise and the terminal rate, and how much the rate has to stay at the level terminal – everything is taken into account”, he argued.
“The relevant horizon is 2023, and the target around the target is below 4%. Of course, if it reaches 4%, we will have to act, but a variation of +0.1 or +0.2, to one side or the other in this environment of uncertainty, 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.
Article amended, at 3:50 pm, in the fourth paragraph to clarify information on investments.
