Brazil minister denies knowledge of plan to raise inflation target

BRASILIA (Reuters) – Brazilian Institutional Relations Minister Alexandre Padilha said on Thursday he was unaware of any discussion within the government about raising the inflation target despite media reports that the move was under consideration.

“In the meetings and contacts I have had with the central bank governor, at no time was this topic brought up to me,” Padilha told journalists after a meeting in Congress. His role involves presenting the governments agenda to Congress and other bodies including the central bank.

Brazilian news website Metropoles and Bloomberg cited unidentified sources as saying an early review of the inflation target and an increase were under discussion. Metropoles said the 2023 inflation objective could rise to 3.5% from 3.25%.

Markets reacted with a 1.5% weakening of the Brazilian real against the U.S. dollar, while the yield curve showed an increase in the short and long terms.

President Luiz Inacio Lula da Silva has criticized the 13.75% benchmark interest rate, set by the central bank, as too high.

According to a government source, central bank governor Roberto Campo Neto indicated that he is open to a debate on changing the inflation target, but there had been no official conversation on the matter. The source asked not to be named because talks are preliminary.

Supporters of this move argue that raising the inflation target would require less monetary tightening and sustain economic activity.

Critics said that a higher target could stoke expectations for even greater inflation and hinder the central banks achieving the new objectives.

According to a weekly central bank survey, private economists expect inflation at 5.78% this year and 3.93% in 2024, far from the 3.25% and 3.0% official goals, respectively.

(Reporting by Ricardo Brito and Marcela Ayres; Editing by Cynthia Osterman)