Main concern starts to be more growth than inflation, says Campos Neto

Amidst the uncertainties about the monetary policy of the BC (Central Bank) in 2023 in the wake of discussions on the conduct of fiscal policy by the government next year, the president of the monetary authority, Roberto Campos Neto, stated that the main concern for front may stop being so much inflationary pressure and become more focused on the pace of growth of economic activity.

“Brazil was pricing a downward cycle [dos juros]🇧🇷 More recently, with this doubt about the future of the fiscal framework, future interest rates reacted. But we are seeing here, basically, that maybe we are now entering a period of change in the main concern, of not being so much inflation and being a little more about growth”, he said this Wednesday (23) during an event promoted by the asset manager BlackRock in São Paulo.

In recent weeks, with the signals from the elected government of Luiz Inácio Lula da Silva (PT) about an invoice of around R$ 198 billion outside the ceiling to fund Bolsa Família from 2023, the market began to price the need to new interest rate increases by the Central Bank, given the prospect of greater inflationary pressure.

The number, which is not closed, as well as the negotiations around the PEC (proposed amendment to the Constitution) of the Transition, have caused oscillations in the financial market, which fears a lack of control of public accounts.

This Wednesday, the futures interest contract for 2024 advanced from 14.38% in the previous session to 14.66%, while the title maturing in 2025 rose from 13.69% to 14.06%.

“The long rate [dos juros futuros] is super sensitive to the trajectory of the debt, we have a world that is heavily indebted, and Brazil needs to show a balance in the accounts looking forward.”

In reference to the turbulent scenario, Campos Neto demanded more transparency. The BC president said that “if you are more transparent and explain better, you can spend more with less cost in terms of credibility”.

“Not explaining very well or not designing the program very well, and having a lot of news at the same time, ends up generating uncertainty that reduces your ability to spend. You obviously can spend more if your explanation of how the debt will converge up front is believable”, he added.

The BC president also pointed out the importance of the government being able to serve the most vulnerable and people who suffer the effects of the pandemic, but without abandoning the search for a fiscal balance.

He pointed out that it is necessary for the government to indicate that it will adopt a fiscal policy that allows the market to envision a sustainable path for the public debt in the coming years.

Campos Neto also stated that a scenario in which the government resumes the policy of stimulating credit subsidy by public banks tends to have an impact on the interest rate considered neutral, which is the one that allows for economic growth without result in an increase in inflation.

“Returning to a world of subsidized credit will cause the neutral rate to rise,” he pointed out.

The BC president also addressed this Wednesday the importance of the independence of the monetary authority during the transition of government.

He stated that the BC’s independence is operational, but it is not administrative and financial, and therefore it is not a matter of complete autonomy.

“It is important that I stay these two years [o mandato de Campos Neto à frente do BC se encerra em 2024] and that I show that all the effort that was made, the support of the people, of Congress, of the STF for this movement of institutional gain, that it serves for moments of government transition.”