‘Declarations by the president or finance minister will not make interest rates drop’, says Eduardo Gianetti

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For an economist and writer, reducing the Selic rate requires a ‘consistent, solid and permanent’ path, and includes measures such as the adoption of a new fiscal framework. Economist says that basic interest rate will not fall “in a scream” Economist and writer Eduardo Gianetti da Fonseca declared that the Brazilian basic interest rate will not fall “in a scream”. In his assessment, “it is counterproductive” for President Luiz Inácio Lula da Silva (PT) and Finance Minister Fernando Haddad (PT) to publicly press for a change in the monetary policy adopted by the Central Bank of Brazil. Gianetti also stated that “everyone wants” to make room for interest rates to fall in Brazil, including BC president Roberto Campos Neto – the target of criticism from members of the government. “But this has to be done in a consistent, solid and permanent way.” “It is not a president’s statement or a finance minister’s statement that will change the methodology and logic that governs the policy for setting interest rates to meet the inflation target in Brazil. I think it is even counterproductive, it is not good, it is not healthy . They should avoid it”, he continued, in an interview with GloboNews Em Ponto, last Wednesday (1). In his criticisms of Campos Neto, Lula has pointed out the difficulty of the country’s growth with the current basic interest rate, maintained at 13.75% by the BC’s Monetary Policy Committee (Copom). Haddad, with a milder tone, said last Wednesday (1) that he did not pressure the Central Bank, but that the body must “do its part” for the balance of the economy. For Eduardo Gianetti, if the government “rudely” confronts existing expectations, it causes undesirable effects. “For example, a currency devaluation, which puts pressure on inflation and, in turn, forces the Central Bank to increase interest rates. I don’t like the president and finance minister talking about monetary policy. It’s not a matter for them,” he said. Market expectations The economist, who holds a PhD in Economics from the University of Cambridge and occupies a chair at the Brazilian Academy of Letters (ABL), stated that the clash between the Executive leadership and the Central Bank involves what he classifies as a “battle for financial market expectations”. “While inflation expectations in Brazil do not start to fall, it is very difficult for the Central Bank to dare a unilateral measure to reduce interest rates. We saw this happen in the Dilma government, a signal error in monetary policy, which caused enormous damage to the economy. Brazilian,” he said. “I hope this doesn’t happen again now. It’s necessary to remember that whenever the president and the finance minister get into this subject, they cause noise, create embarrassment, harm the game of expectations so that interest rates can be consistently reduced in Brazil.” Reinforcement of fuels For the economist, the return of federal taxes on fuels is a victory for the economic team, which proved to be “attentive” and intended to “address the serious fiscal problem that Brazil faces”. “This year we are going to have a significant growth in the public debt, which cannot continue in the coming years – because it will call into question the entire economic policy of the government and the credibility of the Brazilian public accounts”, he said. Fiscal framework and tax reform In Gianetti’s assessment, the new fiscal framework and tax reform are two fronts that will determine the course of events in the Brazilian economy in the medium term. “It is what will in fact guarantee the space for interest rates in Brazil to drop consistently. We have to remember that we are going to be spending something between R$ 650 billion and 700 billion in the payment of interest on the public debt. serious problem in a country with serious budget constraints like ours”, he warned. “Now it is impossible to imagine that it will resolve with voluntarism to lower the scream. The two measures that will guarantee this result are the new fiscal framework and a simplified and minimally rational tax system”, concluded Gianetti.

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