Inflation Targeting Brazil

Inflation Targeting in Brazil was adopted as a monetary policy framework to make their inflation rate low. On 1st of July, 1999 Brazil has implemented inflation targeting, within a very short time frame, to measure inflation and also to solve the economic problems in that country.

• Key Aspects of Inflation Targeting In Brazil:

  1. The inflation target will be set or determined on the basis of different types of price indexes like the Consumer Price Index.
  2. The National Monetary Council will set the tolerance interval in accordance with the Finance Minister’s business proposal. The council will also set the inflation target for the year.
  3. The duty to achieve the inflation target is given to Central Bank of Brazil who will apply the necessary policies.
  4. The price index will also be chosen by the National Monetary Council. Although it would be done according to the Finance Minister’s proposal.
  5. If the inflation for a particular year limits itself within the tolerant intervals then, targets will meant to be achieved.
  6. If the target has not been achieved then the reverend Governor of the Central Bank has to explain the causes to the Finance Minister.
  7. The Governor has to explain the adopted measurement which will ensure the fulfillment of the inflation target.
  8. This inflation report, which contains the inflation targeting framework and the monetary policy actions, are published quarterly.

• Operational Framework:

  • Transmission Mechanism:The Central Bank of Brazil has developed a small scale structural model of transmission mechanism of monetary policies to survey the expectations of inflation. It also determines the growth and other economic variables.
  • Small Macroeconomic Models: According to the macroeconomic characteristics of Brazil the monetary policy transmission through the total demand channels usually takes almost 9 months to act.
  • Complementary Models: The tools that have been developed by the research department of the Central Bank of Brazil to support the monetary policy decisions are complemented with many short term inflation forecasting models. These models include Vector Autoregressive Models and Autoregressive Moving Average.

• Conclusion:

  Brazil has implemented inflation targeting to determine a well defined target for the rate of inflation and also to make the monetary policy framework. By inflation targeting the Central Bank of Brazil wants to get a clear view of the behavior of the key macro elements.

  In Brazil, the inflation report is disclosed to the public to convey the target of inflation and other monetary policy decisions to them. So general public will get a clear idea about the economic condition as well as the economic targets of the country.

  The quantitative figures of inflation target will set the way to lower the inflation rate and also to promote economic development.