Structural growth in Brazil starts to worry, says Campos Neto

The president of the Central Bank, Roberto Campos Neto, stated that, although the average performance of economic activity between 2020 and 2022 should be better than expected, structural growth in Brazil is starting to worry.

“When you look at the combined 2020, 2021 and 2022, the average is better [que o previsto], but it is starting to worry about what is the structural growth in Brazil and how we can improve it,” he said at a Bank of America event this Wednesday (24).

The BC head reaffirmed that the autarchy must revise its projection for the GDP (Gross Domestic Product) for next year, currently at 2.1%. The new estimate is expected to be published in the next quarterly inflation report on December 16th.

In recent weeks, analysts and financial institutions have revised downward expectations for GDP (Gross Domestic Product) growth in 2022. According to this week’s Focus bulletin, in which the Central Bank releases market projections, economists expect growth of 0.70 %. A week ago, the projection was 0.93%, and four weeks ago, 1.40%.

Some analysis houses are already working with negative GDP for 2022.

Regarding inflation, he reiterated that the country went through consecutive shocks, in two waves, first in the price of food, with weather events and change in the dynamics of consumption during the pandemic, in addition to commodities and, finally, in 2021, with energy and fuels. “When we combined these factors, we had the biggest shock in history,” he stressed.

Campos Neto pointed out that the rise in prices in the country was more persistent than expected and spread intensely.

Inflation expectations have been growing week by week, both for this year and for 2022 and 2023.

The market expects the index to end 2021 at 10.12%, well above the target set by the CMN (National Monetary Council) at 3.75% — with a 1.5 percentage point of tolerance up and down.

For 2022 and 2023, expectations are at 4.96% and 3.42%, respectively, above the target center for the periods, but still within the tolerance range.

Today, the Copom (Monetary Policy Committee) is already aiming for price controls in 2022 and 2023, in the so-called relevant horizon, for when the BC understands that the monetary policy takes effect, with targets of 3.5% and 3.25% ..

The BC president stated that the Copom should discuss at the next meeting, on December 7th and 8th, whether the focus will still be on bringing the 2022 inflation to the target or whether 2023 will gain prominence.

Currently, the basic interest rate (Selic) is at 7.75% per year and the signal is that there is a new increase of 1.5 percentage points, to 9.25%. With recent inflation data worse than projected, some economists expect the BC to pick up the pace, increasing by 2 points.

On the rate of interest rate hikes, he highlighted that the BC’s objective is to properly calibrate so that the tightening is not greater or less than necessary.

“In all central banks there are two mistakes that can be made. The first is to go up too fast [os juros] and not having the perception of what the delay is [de efeito da política monetária], and not being able to measure it especially because, because of the pandemic, the models don’t work so well. You look later and draw that conclusion. The other is not doing enough and starting to unravel expectations [de inflação]”, he said.

Asked about the effectiveness of monetary policy, he said that this is also debated within the BC and that, in addition to the change in the dynamics of the inflationary process, there was a structural change in the interest rate, with large companies financing themselves in the capital market and banks lending more for smaller companies, for example.

“The tendency is to believe that we have a more powerful instrument now because we have less subsidy in the long term, the curve responds more to that”, he pondered.