(Adds analysts’ comments and context)
By Alonso Soto and Silvio Cascione
BRASILIA, June 25 (Reuters) - Brazil on Thursday narrowed its inflation target band for 2017, the first change to the country’s official goal in 11 years in a bid to win over markets skeptical of the government’s commitment to curb persistently high inflation.
The national monetary council, made up of the finance and planning ministers and the central bank chief, kept the mid-point of the target at 4.5 percent in 2017, but set the tolerance band at 1.5 percentage points either way.
It is the first change since 2004 when the range for 2006 was narrowed to 2 percentage points from 2.5 percentage points.
Reuters reported first on Monday that authorities were considering changing the target to bolster their credibility after a spike in prices.
“This was important, reinforces the bank’s credibility and helps it regain market’s trust,” said Thais Zara, chief economist of consulting firm Rosenberg & Associados. “This signals the government as a whole is committed with lowering inflation.”
High inflation has turned into a major headache for President Dilma Rousseff who has vowed to do everything possible to bring down prices in her second four-year term, which started this year. Annual inflation surged to 8.80 percent in the month to mid-June.
After her tight re-election win, Rousseff picked former banking executive Joaquim Levy to lead a major shift in economic policy toward more orthodox ideals to regain the trust of investors and avoid losing Brazil’s investment-grade rating.
An overwhelming majority of economists supported the idea of tweaking the 2017 target to show the government is serious about tackling inflation in the long run, a Reuters poll showed earlier on Thursday.
The council made no changes to the 2016 target as some in local media had speculated.
Inflation in Brazil has remained very close to the ceiling of the target band for the last five years, eroding the credibility of the central bank.
Even after raising interest rates to the highest level among major economies, analysts doubt the bank will be able to fulfill its promise to get inflation back to 4.5 percent in late 2016.
“The inflation target in Brazil is too high,” said Juan Jensen, economist for Tendencias in Sao Paulo. “This could be first step in the direction of lower targets in the future.” (Additional reporting by Marcela Ayres; Editing by Chris Reese and Cynthia Osterman)