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I usually would never write about the same issue twice in the same day, but the developments that took place after the announcement of the 2009 inflation target proved to be far messier than I could anticipate. Indeed, in the interview that followed the announcement Governor Meirelles and Finance Minister Mantega made some statements that created more than their fair share of confusion. I am still somewhat puzzled on this, but I hope that you will forgive me for that.
Indeed, whereas the formal target is 4.5% for 2009 Governor Meirelles stated that “the National Monetary Council (CMN) wants to keep inflation below the center of the target, provided macroeconomic conditions allow it”, and that “there is no orientation to make inflation converge to 4.5%”. At the same time, Minister Mantega added that the decision to keep the target at 4.5% reflected the intention to “give flexibility” to the Central Bank, since “a 4.5% target allows the Central Bank to accommodate moments of turmoil”.
In other words, the 4.5% target is not THE target, but rather something else, since the CMN wants inflation to be lower than 4.5%. At the same time, it can be the target, if macroeconomic conditions changes and the CB has to accommodate shocks (I foolishly believed that the 2 percentage points interval existed precisely for this reason, but possibly have gotten this one wrong during my 2.5 years at the CB).
That said, according to Minister Mantega, it would be a mistake to assume that there are two targets (another one I got wrong), and Governor Meirelles reaffirmed that there are not hidden targets, and that the CMN decision to set the target at 4.5%, but allow the CB to pursue something else (or the something else was 4.5%?) was intended to increase transparency.
Finally, according to the Governor, “the inflation range is between 2.5% to 6.5% and CMN indicates to the CB that market expectations are in line with the Council’s long term objectives (targets?), and we are going to pursue these objectives”. Yet, “should macroeconomic conditions change, the CB can change CMN orientation”.
Summarizing, the target is 4.5%, but the CB will pursue a lower figure, which would then be the true target, eliminating the first target, since it would be a mistake to think that there are two targets, unless, of course, macroeconomic conditions change and then the target would be 4.5% again, or not, since the target ranges from 2.5% to 6.5%.
I kindly ask the reader that understands what is going on to help me with this one.