COPOM Watch: "The friendly ghost"

BRAZIL ECONOMICS - Report 29 May 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The finance minister recently complained about the “little ghosts” that are “getting into people's heads and harming our development plan.”

Some have interpreted, rightly or wrongly, the minister's statement as a veiled attack on the Central Bank's Focus survey, suggesting that the rise in inflation expectations captured by that survey reflects a concerted effort to influence monetary policy decisions. In other words, market analysts are allegedly trying to “force the hand” of the Central Bank to stop the reduction of the basic interest rate.

This is a serious accusation. It is worth investigating whether there are indeed signs that inflation expectations are being “manipulated” to suggest an artificially inflated number to the Central Bank, which would convince it to maintain an interest rate higher than necessary to promote the convergence of inflation to the target.

Now read on...

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