June 26, 2018 / 9:40 PM / 2 months ago

UPDATE 1-Brazil lowers inflation target to 3.75 pct in 2021

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BRASILIA, June 26 (Reuters) - Brazil’s top economic policy body on Tuesday set a lower inflation target for 2021, another step in its efforts to convince businesses and investors of the country’s commitment to turning the page on decades of high inflation.

Brazil’s National Monetary Council (CMN) set the 2021 inflation target at 3.75 percent, below the 4.50 percent, 4.25 percent and 4.00 percent targets for 2018, 2019 and 2020, respectively. Policymakers kept a tolerance margin of 1.5 percentage points up or down for each year.

The move is the latest step in Brazil’s campaign to increase transparency and boost its inflation-fighting credentials after being accused for years of tolerating above-target inflation in order to keep down short-term unemployment.

In 2017, the CMN, comprising the heads of the Finance Ministry, Planning Ministry and central bank, unveiled a lower target for 2019, breaking the 4.5 percent target it had used for 14 years. Last year, it began to unveil targets for several years in advance.

Brazil struggled with rampant price hikes for most of the last three decades even after getting rid of hyperinflation in the 1980s, but has made significant strides in recent years.

The bank undershot its target range in 2018 for the first time since the advent of the inflation-targetting regime, mostly due to food deflation brought about by a record harvest.

A slower-than-expected economic recovery has also kept unemployment high and limited price pressures. Product shortages driven by a truckers’ strike in the final weeks of May has finally brought inflation back to the target range. (Reporting by Matheus Maia Writing by Bruno Federowski Editing by James Dalgleish and Richard Chang)

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