BC President indicates end of monetary tightening cycle in May

Central Bank President Roberto Campos Neto said this Thursday that a further increase in the basic interest rate in June is not a likely scenario, indicating that the strong cycle of monetary tightening started a year ago in an attempt to curb inflation should close in May.

Faced with new inflationary pressures caused by the war in Ukraine, Campos Neto said that a change in the inflation target to accommodate shocks to the economy would have “little to gain” in terms of credibility.

According to Campos Neto, at the meeting of the Monetary Policy Committee (Copom) last week, the collegiate evaluated the increase in the scenario of uncertainty, the appropriate pace for the rise in interest rates and the terminal rate of the tightening cycle.

“We understand that, using this mix of factors, the most appropriate thing was to raise 1 point (in the Selic in March) and indicate another 1 point (in May), saying that, if the international scenario worsened or that if there were any another shock that affects expectations in the same direction, we could rethink the scenario, making an additional move in June, it is not the most likely scenario”, he said.

In the last week, the Central Bank raised the Selic by 1 percentage point, indicating a new adjustment of the same intensity in May, which should lead the Selic to 12.75% per year. If this scenario materializes, the tightening cycle will have raised interest rates by 10.75 percentage points from the historic floor of 2% that was in force until March 2021.

In a press conference to comment on the Quarterly Inflation Report, Campos Neto said that “if there is one thing that the Central Bank has been doing, it is not falling behind the curve” in interest rates, justifying that the autarchy moved faster than other central banks in the world.

The BC president considered that there is no risk of “overkill”, when the monetary authority exaggerates the dose of monetary policy, justifying that the Brazilian reality allows minimizing the chance of this type of problem.

Campos Neto said that the municipality works with confidence intervals for inflation and that adverse shocks can exceed this interval. For him, however, just as there were several shocks of high inflation, it is also possible that there will be low shocks.

According to Campos Neto, talking about a change in the 2022 inflation target would make little sense, added to the fact that the projections for 2023 indicate that the price index is close to the target.

According to him, the monetary authority has instruments to meet the target and it is not up to the BC to make a projection about changing this target, something that could be discussed within the National Monetary Council.

In the interview, the director of International Affairs and Corporate Risk Management​, Fernanda Guardado, stressed that given the lag in the effect of monetary policy on inflation, at the next Copom meeting, in May, the relevant horizon of the decision will be fully 2023. .

fuels

Campos Neto also highlighted that there is still a risk premium linked to fiscal uncertainty, noting that the BC follows discussions on tax cuts and implementation of subsidies to update its scenarios if new measures are implemented.

Asked about the fact that he had participated in government meetings that discussed fuel prices, the BC president said that his role in the meetings was as a technician, without participating in any decision.

On the rise in gasoline, he stated that the transfer of product readjustments to pumps has been faster than anticipated. He also highlighted that even in countries that have mechanisms to dampen oil price volatility, the oscillation was so high that the systems were overcome.

Campos Neto also commented on the standard operation of the autarchy’s servers that ask for salary readjustments. He said that he respects the right to demonstrate, considering that employees have a sense of responsibility and that the BC has a contingency plan if something more severe happens.