Sergio Vale: Central Bank gives warning signs for 2024

The Central Bank increased the Selic to 13.7% and left what lies ahead in suspense. If there was less uncertainty about the bank’s path in the last decisions, in which he signaled what he would do at the next meeting, this time he left it open. It can go up 0.25 percentage point or not. In addition, it opened the inflation assessment for 2024, expanding the bank’s horizon of concern with
growing risks of rising expectations for two years from now.

It is true that the BC already puts into account a return of energy and fuel prices next year when the exemptions are over. This helped raise inflation expectations by almost 1 percentage point for next year and many analysts are already predicting IPCA even above 6% next year.

The fact is that the BC is tending to let the storm pass from 2023 and focus on 2024, which, in theory, would no longer have the effects of so many accumulated shocks as we have seen since 2020.

It is expected that in 2024 the issue of commodities has already been forwarded with some solution to the war in Ukraine and the exit from the recession that should grip the world next year. However, do not
can forget about the rebound effect that can have on commodities when interest rates start to fall and the recovery starts to happen. If it’s true that the commodities shouldn’t be a ghost next year, they might be back in 2024.

When the BC focuses on fighting inflation two years from now, it is counting on a scenario without today’s risks. But for the distance and the very turbulent middle of the way the bank will have to be still
aggressive to actually contain expectations for 2024. This means that it will make a very slow Selic drop next year, ending 2023 in double digits, probably around 11.5%.

Next year’s growth is increasingly risky and if today it is around 0.5% it will not be difficult for a recession to appear over the next few quarters. It will be essential for anyone
that it be elected to give the main economic policy guidelines at the end of the year and, it is hoped, balanced to avoid a negative scenario that extends too long.

But with the election approaching, the administration’s tactic of bursting with growth this year for electoral effect could make the election more contested, which in the past would not have been a problem, but this year will be up to the president. Ideally, whoever won would do so by a wide margin so that there would be no contestation.

A very close election will bring a very difficult scenario, especially if Lula wins under these conditions. In this scenario, it would not be surprising if the BC has to act again at the end of the year by raising the Selic rate. The likely pause of the September meeting could end if there is not a very credible consolidation of the scenario at the end of this year.

In this scenario, it would not be surprising if the BC has to act again at the end of the year by raising the Selic rate. The likely pause of the September meeting could end if there is not a very credible consolidation of the scenario at the end of this year.

This text does not necessarily represent the opinion of CNN Brasil.