The president of the Central Bank (BC), Roberto Campos Neto, said that the new fiscal framework, presented this Thursday (30th) by the Ministry of Finance, does not directly affect the country’s monetary policy, but may change market expectations, factor that impacts the BC’s decision on interest rates.
According to Campo Neto, the BC’s decision-making process has no “political component” and the maintenance of the basic interest rate, the Selic, at 13.75% per year it was technical.
The Central Bank released today its Inflation Report, followed by a press conference with the BC president.
Questioned about the new framework, Campos Neto said that the Central Bank has not yet had access to all the parameters of the measure, but that it will analyze what was announced. “The important thing for us is how to incorporate this into our projections. We do not make [política] tax, it is not a BC job. We incorporated the inspector in our expectations, in the role and reaction that the BC has. Remembering that we have a regime that is based on a floating exchange rate, on a target system and that has a fiscal anchor, ”he explained.
At Copom minutes released this week, the BC reinforced that there is no mechanical relationship between inflation convergence and the presentation of the fiscal framework, as the former reacts to inflation expectations, public debt projections and asset prices. On the other hand, he also highlighted that “a solid and credible fiscal framework” can help in the disinflation process.
“The committee points out that the materialization of a scenario with a solid and credible fiscal framework can lead to a more benign disinflationary process through its effect on the expectations channel, by reducing inflation expectations, uncertainty in the economy and the risk premium associated with domestic assets,” says the document.
For Campo Neto, the Minister of Finance, Fernando Haddad, is “very well intentioned” and has a tough fight ahead of him to balance the public accounts.
“When we looked at the framework, even without parameter calibration, it seemed quite reasonable,” he said. “We recognize the effort that is being made by the Minister of Finance, in a project that is tough, in a government that has many divisions and I think it clearly denotes a concern with the debt trajectory”, completed the president of the BC.
technical decision
The Selic is the main instrument used by the Central Bank to reach the inflation target because the rate affects prices, since higher interest rates make credit more expensive and stimulate savings, avoiding heated demand. In March 2021, the agency began a cycle of monetary tightening, amid rising food, energy and fuel prices, raising the base rate to its highest level since January 2017, when it was also at 13.75% per year.
The decision to maintain the Selic at this level has been criticized by the federal government, which demands a reduction to boost economic growth. According to Campo Neto, the BC’s relationship with the Treasury is good and the body tries to communicate “in the best possible way” the parameters of monetary policy.
“We need to explain to society that this technical work has a short-term cost, but that not doing it has a higher cost, and show the advantages of having inflation under control, specifically from the social point of view,” he said. “That is why autonomy is important for the Central Bank to make this decision about things that have a high cost in the short term so as not to have to incur a much higher cost in the long term, which would be much more harmful to society”, he added.
According to the president of the Central Bank, countries that today have high inflation are showing an increase in extreme poverty and a drop in consumption and consumer confidence.
