Meeting the Fiscal Target and Signals from Monetary Policy

BRAZIL ECONOMICS - Report 03 Apr 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Last week the Finance Ministry announced measures to guarantee compliance with the primary deficit target in 2017; the National Monetary Council (CMN) disclosed new rules for loans from the BNDES; and the Central Bank published the latest Inflation Report, updating the projections for 2017 and 2018. With the measures in the fiscal field, the government has demonstrated that the political cost of the large spending cuts will not be an impediment to meeting the primary deficit target. The alteration in the calculation of the TJLP removes one of the sources of distortions present in the functioning of the BNDES in recent years, which will help improve the economy’s efficiency and lower the neutral real interest rate. All these measures are in the right direction. Finally, the Inflation Report strengthens the perspective for a steep decline of the real interest rate without jeopardizing the inflation target.

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