Haddad changes tone and says BC minutes were “friendly” and “analytical” about Selic

One day after strongly criticizing the Central Bank’s first statement on maintaining the basic interest rate at 13.75% last week, the Minister of Finance, Fernando Haddad, changed his tone this Tuesday (7) and considered the minutes more “friendly” and “analytical” Monetary Policy Committee (Copom).

The statement was given in a quick interview after leaving the ministry after a meeting with the Minister of Planning, Simone Tebet, hours after the monetary authority published the full text of the decision that kept the Selic at the same level since August last year. (see in full)

For Haddad, the Copom text makes “important points about the work of the Ministry of Finance”, different from what he had communicated previously, only with a signal that monetary restrictions should last longer than expected.

“A minute, let’s say, more friendly in relation to the next steps that need to be taken,” he said.

The Copom minutes state that the assessment previously made by the market on the impact of inflation on the budget is already lower, “possibly incorporating the fiscal package announced by the Ministry of Finance. The Committee maintained its usual governance of incorporating policies already approved by law, but recognizes that the execution of such a package would attenuate fiscal stimuli on demand, reducing the risk of an increase in inflation”, says the text.

The Central Bank also analyzed that the implementation of the fiscal adjustment package should “mitigate the fiscal risk, and that it will be important to monitor the challenges in its implementation”.

“The announced measures are in progress”, added Haddad, stating that the Federal Supreme Court (STF) is judging issues related to the Tax Resources Administration Council (Carf) and that it is working with the government to articulate a sufficient base in Congress to vote the provisional measure that will confirm the return of the casting vote to the body.

Uncertainty about the new fiscal anchor

A point pondered by the monetary authority is the expectation for the elaboration of a new fiscal framework for the public accounts, a mechanism that should replace the spending ceiling and that was promised by the government in the vote on the PEC break-the-ceiling, at the end of last year.

According to the BC, among the upside risks to the inflationary scenario and inflation expectations, the “still high uncertainty about the future of the country’s fiscal framework and fiscal stimuli that imply sustaining aggregate demand, partially incorporated in the expectations of inflation and asset prices.

For the economic department of Banco Bradesco, the minutes of the Copom reform the attention regarding the distancing of inflation expectations from the target formulated by the National Monetary Council (CMN). Despite this, the institution’s analysts see that there is still a chance of fulfilling the forecasts for the year, such as the gradual reduction of the Selic rate to 12.25% by the end of 2023, depending “on the ongoing structural debates, mainly on the signals about the new fiscal framework and the inflation target”.

“The Copom recognizes that the recent measures announced by the Ministry of Finance can help to reduce the risks of inflation ahead. The Committee also mentioned that economic activity, including the labor market, is losing steam; and that core inflation seems to be starting to retreat around the world”, adds Caio Megale, chief economist at XP Investimentos, who predicts stability in the Selic rate for this year.

Minister Fernando Haddad stated that inflation targets should be discussed at the CMN meeting next week, with minister Simone Tebet and the president of the Central Bank, Roberto Campos Neto. As for the new fiscal framework, he said it will be announced in April, “because we have the LDO [Lei de Diretrizes Orçamentárias]which requires compatibility with the new fiscal framework”.

Room for drop in interest rate

Maintaining the interest rate at 13.75% has become the main point of friction between President Luiz Inácio Lula da Silva (PT) and the Central Bank since the beginning of the new government. This Monday morning (6), Lula spared no criticism of the monetary authority and went so far as to classify the statement as “shameful”, and said that there is a lack of “pressure” from society for the Selic to start lowering.

On the other hand, Haddad adopted a more conciliatory tone, and stated that the decrease in the rate is a two-way street, “from here to there and from there to here. What I have always advocated, since my first interview, is the harmonization of monetary and fiscal policy”.

“The idea that they are arms of the same organism, that have to work together. This is the most modern economic theory, fiscal and monetary working together for the benefit of growth with low inflation”, he stressed.

According to the minister, the fiscal adjustment that was proposed in January and more new measures that will be announced throughout the year will converge “in the right direction of fiscal robustness. We need to have a robust tax base that allows a moderately sized state to meet the constitutional rights envisioned for all citizens.”