For inflation to continue improving, the government’s political wing needs to show fiscal responsibility, says Mansueto – 06/28/2023 – Market

The beginning of the cycle of interest rate cuts in the coming months should be confirmed as the inflation data continue on the recent deceleration path, said this Wednesday (28) the chief economist at BTG Pactual, Mansueto Almeida.

For that to happen, however, it is necessary for the government’s political wing, and not just the economic team, to demonstrate its commitment to responsibility in the conduct of public accounts, said the former Treasury secretary.

“For the inflation scenario to keep improving, we have to increasingly show a sign of fiscal responsibility. The Minister of Finance [Fernando Haddad] has been working to show its commitment to improving public accounts, but we need to hear the same thing from the government’s political wing and make it very clear that it is not a commitment only from the Ministry of Finance”, said Mansueto during an event promoted by BTG .

Signaling responsibility with the government’s fiscal policy as a whole would help to reduce inflation expectations of financial agents, which would make room for the BC to eventually promote a cut in the Selic rate above what the market predicts today, he said.

BTG’s chief economist also stated that maintaining the inflation target at 3% per year, with the change in the period in which the Central Bank needs to reach the objective, also tends to contribute to reducing the level of inflation projected by the market ahead, being one more factor in favor of the reduction of interest rates.

The CMN (National Monetary Council) meets this Thursday (29) to discuss inflation targets for the coming years.

While at the beginning of the year the financial agents were apprehensive about the possibility of a change in the inflation target, now the expectation is that there will be some flexibility not in the number to be pursued, but in the period that the monetary authority will have to reach the objective, the which brought some relief to investors, also because it is a common practice in developed economies.

“It is extremely important to create the conditions for the Central Bank to cut the interest rate in a planned way, so that we can have inflation moving towards the target for 2024 and greater growth [da economia]”, said Mansueto.