Campos Neto says subsidy to cushion the rise in commodities is a good solution, but it creates risk

The implementation of subsidies to mitigate the social impacts of the rise in commodities is a good solution, said this Wednesday (1st) the president of the Central Bank, Roberto Campos Neto, considering that measures in this sense carry the risk of becoming permanent public spending.

In a BIS (Bank for International Settlements) panel on the role of central banks in the green transition, Campos Neto presented possible alternatives for governments to deal with the soaring prices of these inputs.

When stating that Brazil has gains in this scenario by producing more commodities than it consumes, he considered that there is a negative side in the social area, with an impact on the poorest population.

Campos Neto said that countries can be liberal and let prices fluctuate until they reach equilibrium, but assessed that this alternative is not socially or politically viable.

The second option, which has been preferred by countries, according to him, is interference in commodity prices, such as oil and energy.

The BC president once again said, however, that this idea negatively impacts investments and compromises the productive sector.

“You can adopt the third solution, which is to transfer part of the positive shock to solving social problems through subsidies. This is a good solution, but the problem is that once the subsidy is created, there is a risk of it becoming an expense. permanent,” he said.

In the presentation, Campos Neto also stated that the Central Bank will monitor and disclose risks generated by climate change and threats of these events to financial stability.

In September last year, the BC announced new rules that oblige banks to incorporate risks related to events such as droughts, floods and fires into their stress tests, starting in July 2022.

For the BC president, Brazil is very connected with the volatility of food prices and has experienced several weather events recently that impact the sector, along with the Covid-19 pandemic.

In addition to monitoring climate risks, the BC president said that the autarchy develops other projects in the area of ​​sustainability. Among them, he mentioned the green bureau, a sustainable rural credit system within the framework of open finance, with social, environmental and climate criteria.

Campos Neto said that the redesign of global value chains generated by the pandemic and the Ukrainian War will consume more energy and be less efficient. He pointed out that the current scenario has red flags in the areas of energy and food, with blocked investments and an impact on prices.