Brazil's Finance Ministry not discussing changes to inflation targets

A man walks at the stairs of the Ministry of Finance in Rio de Janeiro
A man walks at the stairs of the Ministry of Finance in Rio de Janeiro, Brazil September 13, 2019. REUTERS/Sergio Moraes

BRASILIA, Jan 31 (Reuters) - Brazil's economic policy secretary Guilherme Mello said on Tuesday that discussions on changing inflation targets were not on the agenda of the Finance Ministry, stressing that the role of the economic team is to focus on reforms to reduce inflation and interest rates.

Speaking at an event hosted by Credit Suisse, he said that this topic arose prematurely and highlighted that the decision on the inflation target would be taken in June by the National Monetary Council, which consists of the central bank governor, the finance minister and the planning minister.

"It is up to the Finance Ministry to work to present reforms and economic measures," he said of the ministry's role in reducing basic interest rates and inflation.

Earlier in January, leftist President Luiz Inacio Lula da Silva said that the current inflation target hinders economic growth.

This year's inflation target, decided in 2020, is 3.25% with a tolerance margin of 1.5 percentage points up or down. The 12-month inflation rate through Mid-January was 5.87%.

Mello said that Brazil's new fiscal framework that will replace the constitutional spending cap would eye debt sustainability but with some flexibility to accommodate economic shocks.

He reinforced the expectation that it would be presented in April, adding that the economic team is looking at the primary budget balance and a rule that works with the public spending horizon since expenses are more controllable than revenues.

When asked about state development bank BNDES, he said it should play a role in the ecological transition and also finance small and medium-sized companies.

Regarding a possible change in the bank's lending rate, which is currently linked to market conditions, Mello said he did not believe that the BNDES' funding rate would no longer be a reference.

Reporting by Marcela Ayres; Editing by Alison Williams and Jonathan Oatis

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