BC releases, this week, the Copom minutes and the inflation report

The Central Bank (BC) gains, this week, relevant artillery to counter President Luiz Inácio Lula da Silva’s (PT) criticism of high interest rates, which are at 13.75% a year, and inflation targets: the disclosure of the minutes of the Monetary Policy Committee (Copom) and the Inflation Report. The two documents will give more substance to the strategy to combat inflation and, by extension, the need for high interest rates.

On Tuesday, at 8:00 am, the minutes of the Copom will be published, which on the 21st and 22nd, decided to maintain the rate and signaled difficulties for the reduction in the short term. The document will show the factors that made the announcement of the meeting harder than expected by the financial market.

The Copom pointed out that among the upside risks to the inflationary scenario “we highlight a greater persistence of global inflationary pressures; uncertainty about the fiscal framework and its impacts on expectations for the public debt trajectory; and a greater, or longer-lasting, discouragement of longer-term inflation expectations”.

The committee’s decision drew criticism from the president’s allies. Even Finance Minister Fernando Haddad and Vice President Geraldo Alckmin, who were trying to appease Lula’s relationship with BC President Roberto Campos Neto, complained about the statement.

Haddad, classified the Copom statement as “worrying”. Alckmin, on the other hand, classified the decision as very radical.

PT president Gleisi Hofmann questioned on social media whether Campos Neto “did not understand his commitment to Brazil”. The Central Única dos Trabalhadores (CUT) stated that it considers “unacceptable” the maintenance of the Selic at the current level.

Inflation Report Out on Thursday

On Thursday, it will be the BC’s turn to release the Inflation Report for the first quarter. The disclosure by President Roberto Campos Neto and by the director of monetary policy, Diogo Guillen, should be closely monitored and may provide clues about the behavior of prices, as well as the possible effects of credit or a banking crisis abroad on the Brazilian economy.

Data from the Brazilian Institute of Geography and Statistics (IBGE) show that the preview of Brazilian inflation, shown by the IPCA-15, was 2.01% in the first three months of the year. The inflation target set by the National Monetary Council (CMN) is 3.25% with a tolerance of 1.5 percentage points up or down.

In March, prices increased by an average of 0.69%, slightly above expectations. But, according to economist Rodolfo Margato, from XP Investimentos, the disaggregated results of the IPCA-15 were “relatively benign.”

According to him, the 3-month moving average annualized with seasonal adjustment – ​​important to assess the short-term trend – was practically stable in the monthly comparison (from 5.80% to 5.82%). “That is, still far from the central bank’s inflation target (3.25% in 2023), but a sign of relief at the margin.”

The economist points out that consumer inflation is still under pressure, but the results of the March preview came with more encouraging signs.

Margato warns, however, that it is still too early to say that the disinflation process will resume momentum from now on, in view of the scenario of rising inflation expectations, the depreciated exchange rate and some short-term stimuli to activity economical.