If inflation does not reach the target in 2023, BC will react, says Campo Neto

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BC (Central Bank) President Roberto Campos Neto said this Friday (18) that the direction of public accounts from 2023 will be essential to understand how the work of monetary policy will take place next year — that is, in what level will the basic interest rate be, today at 13.75% per annum..

“We need to understand how the inspector will develop”, stated Campos Neto, during an event in São Paulo. He said that the uncertainty over the management of public accounts in the coming months has led the market to consider a short-term increase in interest rates.

Until then, the market projected the beginning of the reversal of the monetary tightening cycle, that is, cuts in the basic rate (Selic), between February and June 2023.

“There is still some work to be done, according to market expectations”, stated Campos Neto.
He preferred not to be assertive about what the Central Bank’s reaction will be next year, as he considers that there is still a high level of uncertainty about the fiscal policy adopted by the government of Luiz Inácio Lula da Silva (PT).

“I cannot work with assumptions. We need to wait to see what will actually be approved,” said the BC president. But, if the convergence with which the monetary authority works for inflation towards the target does not occur as expected, “we will react”, he said.

Forecasts by economists compiled by the BC in the Focus survey this week indicated an IPCA of 4.94% in 2023, above the target for next year, which is 3.25%, with an acceptable variation between 1.75% and 4 .75%.

The BC president also said that the figure of the fiscal policy at the moment can be considered positive, but he stressed that the biggest concern is that the programs adopted in recent months become permanent.

He stated that so far the market is having a hard time understanding what the government’s new fiscal policy will be in the coming years. And that, depending on the new structure of fiscal policy, it could interfere in the way the BC looks at the scenario ahead. “It’s important to have fiscal and monetary policy coordination at this stage of the cycle.”

Campos Neto also commented on the end of the spending cap and the reformulation of the fiscal anchor, an issue debated by the elected government since the election period. “The important thing is to have credibility in the fiscal framework”.

“We understand that this must be built in a way that gives credibility to investors that we will continue on the path of debt convergence, and that is the most important thing”, he continued.

The BC president also stated that attention is needed with the social issue, as many people are still suffering the effects of the pandemic and the rise in food prices, but that, on the other hand, it is also necessary to be attentive to market reactions.

The reality, said the president of BC, is that in scenarios of adverse economic conditions, with high inflation and uncertainty for companies to plan, those who end up suffering the most are the lower income population.

He also stated again that some improvement in Brazilian inflation could be observed over the last few months, but that there is still “no reason to celebrate” and that part of the recent price dynamics came in the wake of specific measures adopted by the government that remain undefined. forward.

When looking at inflation expectations for the coming years, the work of monetary policy is beginning to yield some results, but “it is necessary to persist in the strategy”, stated Campos Neto, adding that the recent recovery of the labor market represented a “big surprise” within BC forecasts.

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