Government makes BC’s work difficult, says Campos Neto – 04/15/2024 – Market

The president of the Central Bank, Roberto Campos Neto, stated this Monday (15) that changes that take away the credibility of the fiscal target make the authority’s work more difficult and increase the cost of interest policy.

The statement was given on the same day that the government of Luiz Inácio Lula da Silva (PT) proposed a review of the trajectory of public accounts, reducing the speed of fiscal adjustment. For 2025, the fiscal target will be zero, no longer a surplus of 0.5% of GDP (Gross Domestic Product).

“It makes our work much more difficult if there is a perception that there is no fiscal anchor, because the fiscal anchor and the monetary anchor need to work together,” said Campos Neto at an event in the United States.

“So, whenever there is a change in government that makes the fiscal anchor less transparent or less credible, it means that you have to pay with higher costs on the other side, so the cost of monetary policy becomes higher,” he added.

At the last Copom (Monetary Policy Committee) meeting, in March, the BC board reduced the basic interest rate (Selic) by another 0.5 percentage point, to 10.75% per year.

The minutes of the meeting showed that some members of the committee assess that a slowdown in the pace of interest cuts may be appropriate if uncertainty in the domestic and global scenarios remains high in the future.

When detailing the factors that made the scenario more uncertain, the Copom mentioned that it had doubts regarding the speed of disinflation of services due to more resilient economic activity. The fiscal issue was not at the center of the debate.

In line with the Copom’s official communication, Campos Neto once again repeated in the United States the message that the ideal is for the goals not to be changed and for “the maximum possible in terms of effort” to be done to achieve the established targets.

“If for some reason you have to make a detour on this, it is very important to communicate well, because if people lose confidence in the fiscal anchor, then the monetary anchor is affected, and we have seen this repeatedly in our history,” he said.

This Monday afternoon, just a few hours before the official release of the PLDO (Budget Guidelines Bill) for 2025, Minister Fernando Haddad (Finance) confirmed to GloboNews the zero target for next year, in an unusual exclusive interview given by the holder of the portfolio before a press conference called to deal precisely with the issue.

The task of explaining the worsening fiscal scenario fell to secretaries from both departments, as neither Haddad nor Minister Simone Tebet (Planning and Budget) participated in the press conference.

Concerns about the heating of the American economy and the change in the fiscal target led the dollar to register an increase of 1.19% and end the day quoted at R$5.182, its highest value since March 2023. The American currency even hit R$5.214 at the session high after Haddad confirmed the change.

For Campos Neto, the real becomes more fragile “when the inspector comes into play”. The BC president, however, sees this trajectory as a short-term movement.

“He [real] is relatively weak in the short term. If we look at the medium term, we are always performing equal or better than our peers. I believe it has to do with the fact that we are now pricing in fiscal balance globally,” he said.

He admits that the country has a high public debt – a worsening of the fiscal policy target should have negative consequences on this trajectory.

According to the Executive’s projections, the debt will continue to rise until 2027, when it will reach 79.7% of GDP, and only then will it begin to slowly fall to 74.5% of GDP in 2034 — still, a level similar to that observed at the end of 2023 (74.4% of GDP).

“Because our fiscal numbers, especially when we look at debt to GDP, are higher, I believe that when fiscal comes into play, it [real] becomes more fragile. But I think a lot of this is short-term movement,” she said.

“Now we are going through this asset pricing phase. Brazil is suffering a little because of the fiscal dimension of the problem,” he added.