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Doubt about the fiscal scene increases the chance of higher neutral interest rates, says Copom in the minutes

In addition to the continuous rise in inflation projections for this and the next two years, the advance in the rate of increase in the basic interest rate, the Selic, was motivated by questions from the Monetary Policy Committee (Copom) in relation to the future of the framework. current tax.

The information is in the minutes of the 242nd Copom meeting, published this Wednesday (3).

“These questions also increased the risk of inflation expectations deflating, increasing the upward asymmetry in the balance of risks. This implies attributing greater probability to alternative scenarios that consider higher neutral interest rates”, says the document.

According to the document, seeking to ensure the convergence of inflation for 2022 to the target, the Committee even considered scenarios with adjustment rates greater than 1.50 percentage points. The prevailing view, however, was that 1.50 percentage point is enough at the moment.

The assessment comes despite the better-than-expected performance of public accounts in recent months. Even so, the Committee continues with the forecast of the falling trajectory of the Debt/GDP, “assuming the maintenance of the current fiscal frameworks, in particular the control of the growth of expenses (ceiling)”.

Among the main factors for the worsening fiscal situation and the increase in the country’s risk premiums, the Copom cited the possibility of further extensions of fiscal policies in response to the pandemic.

Even so, the Committee maintained the expectation of a resumption of activity in the second half, “although less intense and more concentrated in the services sector”.

“For 2022, if on the one hand the rise in risk premiums and the tightening of financial conditions act to discourage economic activity, on the other hand, the Copom assesses that growth tends to benefit from three factors: the continuation of the recovery in the market for work and the service sector; the performance of sectors less linked to the business cycle, such as agriculture and extractive industry; and the remnants of the economy normalization process as the sanitary crisis cools down”, he explains.

The Copom still considers that, in the external scenario, the environment has become less favorable, reflecting the persistence of the inflationary process and the consequent reaction of central banks. “Next year should be characterized by lower growth, with the reversal of fiscal impulses and progress in the normalization of monetary policy. For emerging economies, this combination implies a more challenging scenario”.

Reference: CNN Brasil

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