Lula: Ignorance about interest rates and BC still costs the country dearly – 06/20/2023 – Vinicius Torres Freire

The President of the Republic must be able to dismiss the President of the Central Bank. Such power is so much fairer when it comes to Luiz Inácio Lula da Silva and a BC president appointed by Jair Bolsonaro, who will stay in office until 2024, if he wants to, as he has a legal mandate.

This is what Minister Rui Costa, from the Civil House, said at a lunch with parliamentarians. The Selic and other interest rates are still sky high, in part because of statements like these, by Costa or Lula.

The country “legitimized” a new economic project through the election of Lula, which supersedes the ideology of one person, Roberto Campos, who chairs the BC, follows the minister.

To begin with, this conversation reveals that Costa has little understanding of how the Central Bank works. Furthermore, it suggests the primacy of government policies over state policies (if the government changes, everything can be turned inside out). This may be the case, but where is the proposal for institutional change?

So far, the government barks but doesn’t bite, in part because overthrowing the Central Bank’s autonomy will not pass Congress. If it did, what is BC’s reform plan? Just nominating a friend, as Lula has just done in the STF or as he says he wants to do in Eletrobras, for example? Is this Republic?

Yes, the BC’s policy, operation and degree of subordination to government directives can be subject to debate and change. Incidentally, the government can already decide, for example, what the inflation target is or how and when to achieve it.

Since the election, the government has only cursed the Central Bank and suggested that it is going to change the inflation target. This conversation, in addition to Lula’s attacks on the idea of ​​controlling the public debt, provoked a rise in interest rates on the wholesale money market where government debt financing rates are defined, which are the floors of the cost of credit in general.

It was only when some cost containment plan came into being (“fiscal framework”) and when some determined financial conditions abroad (such as the dollar) improved, for example, that market interest rates returned to the November level of “Lula Day” , a decrease that occurred from May onwards.

The noise about the change (increase) of the inflation target still prevents a faster fall in expectations and interest rates. If the government had already said that it will not change the target, to be decided at the end of the month, it would be making money. But, with that ignorant rumor, he has given tens of billions to the rentiers he says he execrates.

Hardly anyone in the Lula government understands the rudiments of how the financial market works.

It is understood there, in fact, that “everything is political” or even political. That prices, financial conditions, productive investment or consumption are decided at the stroke of a pen, which is evident in the vexatious nonsense of this “More Cars” program. It is the mentality of a deputy deciding on the use of a parliamentary amendment or ministers disputing the nomination for a Codevasf superintendence in the interior of Bahia.

If the government has another idea besides appointing friends of the king to key state posts, what is it? Even if you die in Congress, what is your modern monetary theory, so to speak? Just lower the Selic by force, placing a friendly sultan in BC, with another “ideological conception”?

So, what is the government going to do with inflation expectations, future interest rates and the dollar? These are indications of the disposition of the owners of big money to lend to the government or to keep their money in reais. In short, the price they charge. Are you going to set prices and interest rates, control capital outflows?

It’s good to arrange for wealthy people to charge less. But what is Lula 3’s plan beyond these uninformed and counterproductive complaints?

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.