Copom minutes: Messages show the influence of the policy in BC – 05/09/2023 – Market

Members of the Central Bank’s Monetary Policy Committee (Copom), according to what has been written in the communiqués and minutes, let themselves be involved in the public fight over interest rates with the government of Luiz Inácio Lula da Silva (PT). The minutes of this Tuesday (9) have examples of this tone.

One of the statements that draws the most attention is the one highlighting that “Copom emphasizes that, despite being a less likely scenario, it will not hesitate to resume the adjustment cycle if the disinflation process does not go as expected.”

The Copom has been adopting this type of warning since before the first round of the presidential election, as if there were any risk of it faltering. The permanence of such prominence has already been considered at least “unfortunate” by some economists. The Copom exists not to hesitate in these cases. Even those who question the high level of interest today have no doubt that he would react in case of a price spike.

The text also asks for “patience and serenity” when conducting monetary policy. The recommendation is cited not once but three times in the current edition. In the minutes of the previous meeting, this recommendation was quoted twice.

It is impossible not to read the reiterated statement as a direct comment to government members, especially President Lula, who has clearly lost patience and serenity when he talks about interest rates in Brazil.

The minutes address the fiscal issue and its effects on inflation in four paragraphs. He states that the presentation of the proposed fiscal framework reduces part of the uncertainty in this field. However, he reiterates that “there is no mechanical relationship between monetary policy and the fiscal framework”. According to the description of the minutes, the leadership of the Central Bank signals that a bad fiscal contributes against it, but new rules, even if they work, do not weigh in favor.

This was not the Copom’s message in the January 2017 minutes, after the approval of the expenditure ceiling.

The text at the time recalls that all members of the Committee reiterated that the approval of the constitutional amendment that stopped public spending was “an important contribution to the Brazilian economy”.

“They also emphasized the relevance of other reforms in the fiscal sphere for the continuity of the ongoing disinflationary process and for the prospects of maintaining inflation around the target, with benefits for society”, says the text at the time.

BC president Roberto Campos Neto has already stated that the institution does not adopt fiscal policy, but it can shed light on the debate. As described in the minutes, the voltage may vary.

Combating inflation is a global challenge. The minutes highlight this. Understanding price dynamics during and after the pandemic has proven to be a new kind of challenge. Not all old formulas work. Costs soared, driving up the prices of items as disparate as cabbages and automobiles. In the gradual return to normality, there were several peaks, in commerce, industry and, more recently, in services.

There is a slowdown in inflation, gradual and far from homogeneous. A good part of the prices remained at high levels. Many convictions and little debate, which has been demonstrated by both the government and the Central Bank, do not seem to be the most rational path to a solution at this atypical moment.