Stable dollar in 2022 depends on US interest and election in Brazil, says former BC

Brazil will need a combination of well-behaved interest rates in the United States and a less noisy electoral scenario in the country to guarantee exchange stability that will help the Central Bank control inflation in 2022.

This is the assessment of the chairman of the Board of Directors of the Credit Suisse bank and former BC chairman, Ilan Goldfajn, who assumes in January the post of director for the Western Hemisphere Department of the IMF (International Monetary Fund).

“It is very difficult for the real to appreciate in a bad international scenario. If you have the Fed [banco central dos EUA] rising interest, forget it. If there’s low interest out there, there’s a chance of appreciation. That will depend on the specific issues of Brazil”, stated Goldfajn this Tuesday (7) during an event held by the manager Frontier Capital.

Among the specific issues are a less polarized electoral scenario, with a third way as an alternative to the two leading candidates in the polls, President Jair Bolsonaro and former President Lula.

He stated that it is also necessary to re-establish a fiscal anchor, after the decision of the government and Congress, and open a hole of more than R$ 100 billion in the spending ceiling through the PEC dos Precatório.

“This combination would greatly appreciate the exchange rate. Now, what is the probability of having an international scenario and a good one here at the same time? Make your calculations.”

BC President Michel Temer (2016-2018), when the spending ceiling was approved, Ilan said that the fiscal rule became a nuisance, attacked by politicians of virtually all currents, who preferred to end it than reduce subsidies , inefficient expenses, rapporteur amendments and other expenses that would make necessary expenses, such as those related to the social area, viable.

“This government was the last to attack the ceiling. Finally it fell, and we still don’t know what to put in its place. Either the primary surplus returns, or the ceiling returns. And no one returns the same, because it comes back singed,” he said .

For Ilan, in addition to “making the central bank’s beans with rice”, which is to raise interest rates to fight inflation, the monetary authority in Brazil can convince other agents that the fall in the base rate in the future will depend on a signal of control public accounts. According to him, it would also help convince some political agents to “keep quiet”.

The political noise in the current government had a price, which was the increase in institutional uncertainty that drove investors away from the country, led to a lower inflow of foreign exchange and helped to keep the Brazilian real depreciated, assesses Ilan.

“[O BC] No need to run after the loss. It’s already gone. Interest rates will stay high, the economy will slow down. It will take time, it will be painful, but that’s what you have to do,” he said.

“Meanwhile, other players are convinced that without a fiscal anchor, they will not be able to reduce interest much. If there is a lot of political noise, you pay the price. External inflation has risen. Here it has risen twice as much. a lot of noise, at the same time having a credible fiscal anchor, there it stabilizes. It depends on the fiscal, the exchange rate and the policy.”

base interest rate to rise

This Wednesday, the BC’s Copom (Monetary Policy Committee) should raise the base rate from 7.75% to 9.25% per year, at its last meeting in 2021.

The former BC president also participated in a debate at another event, organized by the Eurasia Group in partnership with B3, in which he stated that the rate of interest rate hike in Brazil is already quite fast and that some central banks need to be more serene than the markets.

During the debate, Shantall Tegho, director of Goldman Sachs, said he expected a few months of high inflation in the US, with the expectation of continuity of supply restrictions in 2022, but said he saw a positive scenario in which the government will be able to contain the price increase without having a large effect on growth. “This disinflation process will start, but not now,” he said.

Shelly Shetty, director of Fitch Ratings, said she expected US inflation to fall in the second half of next year.

She said that the scenario for Latin America in 2022 does not have many positive signs, especially given the elections in several countries, but highlighted the action to fight inflation in the region. “At least the central banks are really trying to find ways to live up to expectations and anchor these economies.”