Copom has more divergences in PT management; see numbers – 09/30/2024 – Market

The Copom (Monetary Policy Committee) of the Central Bank has been seeking to reaffirm the group’s cohesion in decisions on interest rates, in an attempt to dispel the ghost of the last split recorded in the collegiate, in May.

The divergence coincided with a political moment of uncertainty, of transition in command of the institution, and drew attention in a historical scenario in which unanimity is the rule.

According to a survey by LCA Consultores, based on information from the BC, only 34 out of 234 meetings registered divergence of votes between Copom members – which represents just 14.5% of the total number of meetings. The highest rates of dissent occurred in PT governments.

“In general terms, the idea is that, no matter how much there are divergences of thought about macroeconomics and how monetary policy affects all macroeconomic variables, the rule is that they [membros do Copom] reach some consensus before voting”, says Bruno Imaizumi, economist at LCA.

For the person responsible for the study, the data reflects an attempt at coordination at the top of the BC and teamwork in search of a common objective: bringing inflation to the target.

Henrique Meirelles’ administration had, proportionally, the highest rate of divergences. He was the longest-serving president of the BC and held the institution’s highest post between 2003 and 2010, during the first two terms of President Luiz Inácio Lula da Silva (PT).

Of the 76 Copom meetings that took place over its eight years of management, there was disagreement on 16 occasions – that is, in 21.1% of cases.

The index is slightly higher than that recorded during Alexandre Tombini’s time as BC president, from 2011 to 2016, when there was a divergence of votes in 20.5% of Copom meetings. There were 9 meetings marked by dissent out of a total of 44, including the episode that generated controversy due to the “hobby horse” in monetary policy.

Since the beginning of Dilma Rousseff’s (PT) government, the Copom had been raising the basic interest rate to control inflation. In July 2011, Selic was raised from 12.25% to 12.50% per year. The following month, the institution announced an interest rate cut, to 12% per year, surprising the financial market.

According to testimony from former minister Antonio Palocci, the then president of the BC informed Dilma that, “contrary to the position she had been taking, of increasing the Selic interest rate, she would decrease it.” On the scoreboard, the majority counted 5 votes against 2 dissenting votes.

Of the 34 divergences recorded at the Copom to date, in 21 of them (61.8%) a more “dovish” stance prevailed – market jargon that indicates a softer stance in relation to interest rate policy. While, in the other 13, the majority adopted a more “hawkish” (i.e., tougher) decision.

In almost half of the cases in which there was disagreement (15 episodes), according to the LCA survey, BC members had to make decisions that involved changing the monetary policy cycle – increasing, maintaining or decreasing interest rates.

Imaizumi rules out a correlation between the highest rates of divergence in the Copom occurring in PT governments, at a time when the BC did not have operational autonomy, and the prevalence of more lenient decisions regarding inflation in the votes.

Between March 2016 and September 2022 there were no Copom meetings with disagreements.

The BC’s autonomy came into force in February 2021, with the aim of shielding the institution from political interference. Since then, the collegiate’s decisions have not been unanimous on only three occasions. With a tight score (5 to 4), the most recent division damaged the credibility of the monetary authority.

On the majority side, there were the current president of the BC, Roberto Campos Neto, and four other directors appointed or reappointed by the government of Jair Bolsonaro (PL), who voted to reduce the rate of decline in the Selic, with a cut of 0.25 percentage point.

While all four directors appointed by Lula defended a larger reduction, of 0.5 percentage points. The vote that caught the most attention was that of director Gabriel Galípolo – recently appointed by Lula as Campos Neto’s successor in command of the BC.

The split raised doubts in the financial market about the BC’s performance from 2025 onwards, when seven of the nine Copom members will have been appointed by Lula.

In recent months, the members of the collegiate have sought to demonstrate that they are in tune with their assessments in an attempt to minimize possible noise in the financial market and reverse the deterioration of inflation expectations, further away from the target pursued.

In the meeting following the controversy, Galípolo said he saw “a lot of value” in the consensus as it minimized the chances of errors in the institution’s actions when conducting interest rate policy.

Economist Juliana Inhasz, professor at Insper, has a positive assessment of the dissent and sees room for new divisions in the Copom. “This means that people debated the subject. They have different views and this adds a lot to the discussion about interest rates”, he states.

“Now, without a doubt, the market sees this as a sign of distrust, because it understands that the alignments at that time [em maio] they were much more ideological than technical”, he adds.