Campos Neto: distrust with the framework is not an exaggeration – 10/01/2024 – Market

The president of the Central Bank, Roberto Campos Neto, tried to make his previous statements that future interest rates are exaggeratedly high in relation to the current situation of public accounts clearer this Tuesday (1st).

Future interest rates expose market expectations for inflation and the basic interest rate, Selic.

According to him, the exaggeration is not in the market’s distrust in relation to the new fiscal framework’s capacity to stabilize the country’s public debt, but in the comparison of Brazil with other countries, both developed and emerging.

“When I say that I look at pricing in Brazil and it seems a little exaggerated, it’s not in relation to distrust, let’s say, of the framework in Brazil. It’s in relation to the comparison with other countries. Because several countries also have a bad primary, with a debt situation”, said Campos Neto during a Crescera Capital event, in São Paulo.

“The truth is that we all need to produce positive primaries to pay for the costs of the pandemic. But this doesn’t happen anywhere, it’s not just in Brazil”, he stated at another time.

The president of the Brazilian BC reaffirmed the importance of having a “positive fiscal shock” so that the country can live with lower interest rates.

He displayed a graph that historically showed the behavior of future interest rates in the face of political decisions that resulted in greater organization of public accounts or greater fiscal relaxation.

In the most recent period, the change in the 2025 fiscal target by the government of Luiz Inácio Lula da Silva (PT) led to a rise in rates.

According to Campos Neto, despite the approval of the new framework at the beginning of the government, Brazil still lacks a fiscal program that generates positive primary results, capable of leading Brazil to have lower interest rates.

Without citing President Lula’s criticisms of the way his administration has conducted monetary policy, he stated that an artificial adjustment of the basic rate, without basis in reality, could produce more inflation, which, in turn, erodes the purchasing power of consumers. poorer.

“Opting for artificially lower interest rates without having a fiscal anchor is equivalent to producing an adjustment via inflation in the medium term,” he stated. “And it is always good to remember that this adjustment is via income transfer from those who cannot protect themselves from inflation to those who can. In other words, a transfer of income from the poor to the rich”, he added.

The fiscal agenda has appeared more frequently not only in Campos Neto’s public speeches but also in official communications from the Central Bank.

In the minutes of the last Copom (Monetary Policy Committee) interest rate meeting, released last week, the collegiate brought a harsher assessment of the trajectory of the country’s public accounts and said it would monitor fiscal policy developments “carefully”.

“A credible fiscal policy, based on predictable rules and transparency in its results, together with the pursuit of fiscal strategies that signal and reinforce the commitment to the fiscal framework in the coming years are important elements for anchoring inflation expectations and for reduction of risk premiums on financial assets, consequently impacting monetary policy”, stated the committee.

“The slowdown in the effort towards structural reforms and fiscal discipline, the increase in targeted credit and the uncertainties about the stabilization of public debt have the potential to increase the economy’s neutral interest rate, with deleterious impacts on the power of monetary policy and, consequently, on the cost of disinflation in terms of activity”, said the collegiate in another section.