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Opinion – Vinicius Torres Freire: Central Bank warns that Lula will have high interest Christmas


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Until the beginning of November, money owners and their economists imagined that the economy’s basic interest rate, the Selic, would fall to 11.25% per year at the end of this 2023. It would still be bad. But it got worse. Now, the median forecast by economists in the market is Selic at 12.5% ​​at the end of the year. It will get worse again.

The Central Bank thinks that 12.50% is too little. Given the present situation and in a calculation at the tip of the pencil, the Selic is unlikely to leave the current 13.75% before the end of the year, who knows with a 0.25 percentage point cut just before Christmas. That’s what the BC’s management practically wrote in the communiqué in which it announced its decision on the basic rate, this Wednesday, maintained at 13.75%.

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And? The Selic is the interest rate on wholesale money, business between banks, roughly speaking. It is the floor of the entire market rate. Selic at 13.75% is already going to bring down the PIBinho for this 2023. If it stays around until the end of the year, the GDP for 2024 could also go downhill.

Will happen? It’s not written in stone. But it’s hard.

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Given the current situation and in the accounts of the BC, inflation will only come close to the target in the third quarter of 2024 with the Selic at 13.75% or close to it.

What is the “present situation”? Inflation expectations for 2023 have been above 5% since mid-October and rising since mid-December, now at 5.74%. It also rises to 2024, to 3.9%. The target for next year is 3%.

This does not mean that the hundreds of estimates by economists in the market compiled weekly by the Central Bank are correct (in general, they are quite wrong). But these are also the calculations that “the market” makes to decide how much it wants in interest and how much it wants in exchange (the price to keep its holdings in reais).

In a practical summary, changing the “present situation” depends now and primarily on the Lula government’s plan to contain the now unlimited increase in the public debt and not resort to crazy interventions in the economy (in interest rates or inflation targets, imports of craziness in Argentina).

A tough and credible “new tax rule” solves much of the problem. A good tax reform (such as the one already in line) oiles the machine.

A faster disinflation in the rich world, with lower interest rates there and, therefore, appreciation of the real improves the inflation perspective here as well (as long as there are no commodity shocks).

Lula has been scoring goals against the economy since November, with the idea of ​​limiting the debt and with the Budget fat beyond the account (bigger deficit). Until October, however, there was relative optimism and falling market interest rates (so much so that the Central Bank tried to hold back the lowering of wholesale rates by shouting).

What is the reason for the excitement? It was thought that Lula 3 would do the essential and inevitable, for now, in macroeconomic policy (spending and debt); it was assumed that the Brazilian economy would routinely grow more than imagined until the beginning of 2022; there is private investment triggered (and to be triggered, if the norms and guarantees are good; if a well-thought-out “green transition” comes along).

At least in 2023 and 2024, without inventing fashion and with the help of a slightly depressed world economy, it would have been possible to surf this wave of even reasonable optimism.

It’s still possible to turn the game around, although the goal difference will be smaller anyway (half a year is lost already).

The problem is that you can still lose a lot too, including in the 2024 game. The country will not be able to stand it, because poverty is high and the monsters of the extreme right and the coup are loose.

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