Gustavo Franco: Let’s move towards a neutral interest rate – 05/02/2023 – Market

Former president of the Central Bank (BC), Gustavo Franco believes that the Selic rate should start a downward trajectory over the next few months, moving towards an interest rate close to neutral, which is the one that stimulates the economy without generating inflationary pressure.

“We will converge to some interest rate in the future that is not 2%, but is not 13%”, said the economist during an event in São Paulo this Tuesday (2).

According to the partner of the manager Rio Bravo, the monetary authority reduced interest rates more than anyone could have imagined during the pandemic, and rose more than expected when it had to resume the high cycle.

“Let’s see how the downturn cycle will be now, it will start in who knows how many meetings. There’s one that will end tomorrow [quarta-feira]let’s see,” said Franco, referring to the Copom (Monetary Policy Committee) meeting that began this Tuesday and ends this Wednesday. The majority market expectation is that the Selic will be maintained at the level of 13.75 % per year.

Franco said that, since leaving the monetary authority, he prefers not to comment on the direction of the Selic on the eve of the collegiate meetings, to avoid any increase in market volatility.

The former BC president added that the Selic “will surely converge” to a level close to the neutral interest rate, “which I don’t know where it is. And if an economist says he knows where the neutral interest rate is, he will be forcing a little bar.”