Monday, November 22, 2010

Make Authorization Letter

IN BRAZIL Inflation in Brazil maintained throughout 2011 on

The National Monetary Council (CMN) decided on Tuesday that the inflation target for 2011 remains at 4.5%, said Planning Minister Paulo Bernardo.

The government repeats, so the same rate for the years 2009 and 2010.

The number will serve as "target" of monetary policy as early as 2010, since the decisions on interest may take up to nine months due to inflation.

Some market analysts have come to argue that Brazil would have room reduce the target by 2011, since the economic crisis has reduced consumption and, consequently, the possibility of higher prices.

However, most experts have pointed to keep the rate at 4.5%.
The explanation is that inflation will return to frighten, as countries begin to recover.
understand what is behind the government's decision.
Because the government has chosen to keep the lens 4.5%?

Keep the goal of 4.5% indicates that the government still sees no room for a significant reduction in inflation in the country.

Prices of some raw materials, which have great influence on inflation in the country, already showing signs of recovery.
By 2011, it is set to increase further more.
In addition, a lower rate reduces the likelihood of success of the Central Bank. And if inflation shows signs that exceed the target, the government must intervene by raising interest rates, which hurts economic growth.
An example of this occurred last year, when inflation was 5.9%. The number was within the tolerance (2.5% - 6.5%) but well above the central target of 4.5%.
The Central Bank was therefore forced to engage in a process of increasing interest rates, which fell from 11.25% rate in June to 13.75% in December. With the worsening global financial crisis, however, the Fed cut rates again.
Why should I then have a target closer?
The inflation target provides more control.
Governments that adopt such a system, in theory, seek to fulfill their commitments, inflation reached an "acceptable ".
In 1999, when the Brazilian government has adopted the system, the objective of the inflation target was 8%. That same year, ' actual inflation was close to the target, with 8.94%.
Currently, the target is 4.5% and the market provides for an inflation rate of 4.33% . Economists favor of the model argue that if the objective is to lower inflation expectations tend to converge a questo nuovo livello, riducendo ulteriormente l'inflazione nel paese.  In questo caso, non ci sarebbe bisogno di alzare i tassi di interesse.
Idealmente, l'obiettivo è sempre il più piccolo possibile, ma senza togliersi dalla realtà.
La decisione è solitamente tecnico o politico?

Entrambi i fattori tendono ad influenzare la decisione. 
Dal punto di vista technical, some economists estimate that depending on the crisis, inflation is expected to produce in the coming years, making room for the reduction of the target.
However, these economists argue that this is not an easy decision, because on the road there are elections for the presidency and state governments.
a smaller target for 2011 could lead to monetary tightening in 2010, a fact that would not be good for the government during the election campaign.

Who decides the goal?

The decision rests with the National Monetary Council, comprising Ministers of Finance and Planning, the Chairman of the Central Bank.

Last year, during discussions about the 2010 target, there were signs of disagreement between the representatives of the CMN.
While the Minister of Finance Guido Mantega defended the maintenance of the objective of 4.5%, the central bank saw room for a smaller target.
This year, however, the dispute has not been so visible. One explanation might be that ministers agree on the future of the economy.
What is the target for inflation?
In the system of inflation targeting, the government makes public what inflation rate you want to pursue.
Thus, its interest rate policy becomes more schedule of markets and society in general.
In this context, inflation is "escape" the main objective can more accurately predict what the reaction of the government. If inflation hit the roof, for example, it is plausible to expect higher interest rates.
The system of inflation targeting was adopted in Brazil in 1999, but not all countries follow the pattern. An example is the United States, where the Government publishes a series of inflation "Desirable" but not an explicit objective.
What are the advantages and disadvantages of this model?
The targeting system has been praised in many countries.
The main reason is the increased transparency and predictability of the system by central banks.


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