Real appreciation will have an effect on inflation in the coming months, says BC director

The director of Monetary Policy at the Central Bank, Bruno Serra, said this Monday (30) that the real has become a positive highlight among the currencies of emerging economies since the turn of the year and that he expects to see the reflection of the exchange rate appreciation on the inflation in the coming months.

“In about three or four months, I hope, we will look at Brazil reversing the exchange rate shock, the exchange rate starting to perform more. This appreciation is recent and will start to hit [na inflação] in the coming months”, said Serra, at an event promoted by Kinea Investimentos, an asset manager controlled by Itaú Unibanco.

According to him, the pressures arising from the war between Russia and Ukraine masked the positive impacts of the appreciation of the real. “The shock of the invasion of Ukraine messed up a little bit, it was very acute and masked this benign exchange rate effect,” he said.

In the 12-month period up to April, the IPCA was 12.13%, the highest level since October 2003 (13.98%). Last Tuesday (24), the IPCA-15 (Extended National Consumer Price Index-15) reached 12.20%, up 0.59% in May, compared to a rise of 1.73% in the previous month. , informed the IBGE (Brazilian Institute of Geography and Statistics).

The BC director also pointed out that, despite the lag in monetary policy softening the volatility of commodity prices, such as oil, the secondary effects were so intense that they are already relevant for the municipality’s projections.

“From now until the next meeting [em junho]we are 100% focused on 2023 inflation. Any shock or oil price fluctuation will now hit our projections until the end of the year, the secondary effects will hit 2023. This model is already smoothing out a lot, within what I think reasonable in a good conduction of monetary policy”, he said.

“The problem is that the shocks are so great that the secondary effects are already relevant. We have to live with it, it’s challenging, but we have to deal with it”, he added.

For Serra, in Brazil, the price of oil to the consumer “badly or well” is adjusted, while there is a delay in some Latin American countries to make this adjustment. He also highlighted that the rest of the world should reach the peak of inflation later on, while the indicator, although at a high level, should start to slow down in the country.

The BC director also pointed out that, after the shocks, global inflation should go down, with the Fed (Federal Reserve, the central bank of the United States) and other central banks committed to bringing the indicator to their respective targets.

In the 12 months to April, US consumer prices rose 8.3%. In light of this, the Fed raised interest rates by 0.5 percentage point, to the range between 0.75% and 1% per year, in early May.

With the monetary tightening cycle advanced in Brazil, Serra considers that the basic interest rate (Selic) is an adjustment variable and that the current high level, currently at 12.75% per year, is a transitory issue. The BC director pointed out that the average Selic rate between 2004 and 2012, a period of strong economic growth, was 12% per year.

“We will converge to an interest rate level that is considered neutral today, around 7% [ao ano], 3.5% real, 3% inflation target. It’s from the moment, the same way it was 2%, now it’s 13%, there will be a moment that it will normalize again “, she said.

On May 4, the Central Bank’s Copom (Monetary Policy Committee) raised the basic interest rate (Selic) by 1 percentage point, to 12.75% per year. For the next meeting, on the 14th and 15th of June, it signaled a probable additional rise of lesser magnitude.

According to Serra, the moment requires global monetary tightening. “Whoever has more accumulated credibility can wait a little longer, but at some point everyone will have to react,” she said.