BC’s statement was tougher than expected by the market, says former director

Tony Volpon, chief strategist of the Wealth High Governance (WHG) and former director of the Central Bank (BC), said this Wednesday (8), in an interview with CNN, that BC’s statement on the 1.5 percentage point (pp) rise in the Selic, the economy’s basic interest rate, by the Central Bank’s Monetary Policy Committee (Copom), was tougher than the market expected .

“There is a great debate in the market due to the signal that the Central Bank gave today. The statement came in a harsher way than the market was expecting. I think you have an interest rate hike tomorrow, reacting to that. But it will really depend on where this process stops”, analyzed Volpon.

This was Selic’s seventh consecutive advance, starting in April this year. According to the Copom statement, the higher-than-usual variance “is compatible with the convergence of inflation to the targets over the relevant horizon, which includes calendar years 2022 and 2023.”

“Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing out fluctuations in the level of economic activity and promoting full employment,” the statement continues.

Volpon explains that the disproportionate increase in the interest rate could cause a sharp drop in inflation in the scenario foreseen by the Central Bank.

“There is a risk today that you really have an exaggeration in the interest rate increase that would eventually cause a very strong drop in inflation in 2023. And it would also risk a recessionary process next year, when the market is already expecting a GDP around zero with current expectations”