government needs to do its homework, indicates BC

A subtle but blunt message was sent by the Central Bank’s Monetary Policy Committee (Copom) in the statement justifying the reasons for the reduction in the Selic rate from 13.25% to 12.75% per year: the government needs to fulfill its obligations to allow the interest reduction cycle to continue.

The message was directed to the federal government. “Taking into account the importance of implementing the fiscal targets already established for anchoring inflation expectations and, consequently, for the conduct of monetary policy, the Committee reinforces the importance of firmly pursuing these targets”, highlights the statement released on Wednesday. fair (20), after the meeting.

At the previous meeting, for the first time in three years, the Copom had removed references to the tax issue from the statement. But the refreshment was short-lived.

Sérgio Goldenstein, chief strategist at Warren Rena, notes that while in the August minutes some Copom members assessed that there was still some uncertainty among economic agents about overcoming fiscal challenges, which could also be affecting inflation expectations in the long term longer, now the committee emphasizes the importance of achieving the fiscal targets already established to anchor inflation targets.

“In other words, the message is clear that frustration with the primary result or a possible change in fiscal targets could lead to a further de-anchoring of expectations, affecting the conduct of monetary policy”, he highlights.

The situation has been deteriorating in recent months. After reaching a minimum of 72.6% of GDP in January, public debt rose to 74.1% of GDP in July, according to BC data. And the accounts, which closed in the black last year with a primary surplus of 1.28% of GDP, are already in the red: in the 12 months ending in September, they recorded a primary deficit of 0.78% of GDP.

Despite the increase in taxes – such as the increase in federal taxes on fuel, the change in the taxation of online purchases from abroad and the periodic taxation of investment funds – the government’s net revenue fell 5.3% in real terms, while Expenses increased by 8.7% in the comparison between the first seven months of 2022 and 2023.

Economist Júlio César Barros, from Daycoval Asset, believes that the reintroduction of the fiscal issue in the BC statement was yet another warning about the importance of meeting the target, but without including it in the balance of risks. “In addition, of course, to pointing out the rate of falls.”

Fernando Ferreira, chief strategist at XP Investimentos, highlights that the statement raises the doubt that, if the government has to change the fiscal target or fails to meet it, this could affect the magnitude of future cuts.

Disinflation will be lower, indicates BC

Another message conveyed by Copom, according to strategist Nenad Dinic, from the Swiss bank Julius Baer, ​​refers to the disinflation process, which tends to be less pronounced in the current phase of interest rate reductions.

After reaching a recent low of 3.16% in June, 12-month inflation rose again, reaching 4.61% in August. One of the main reasons for this increase was the exclusion of deflations recorded in the third quarter of 2022 from the calculation.

Analysts do not see much room for an acceleration in the pace of interest cuts. According to BV economists, the main factors that have limited this possibility should remain in place in the coming months. They include:

• pressure on global interest rates;
• concern about Chinese growth;
• difficulty in achieving global goals; It is
• inflation resilience.