Minutes point to fall and alleviate Campos Neto’s political situation, but show internal divergence

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The Copom communiqué, released last week, followed this line of greater caution. Which led the Central Bank to be the target of criticism once again, this time with the entry of the Minister of Finance, Fernando Haddad, in the choir. President of the Central Bank, Roberto Campos Neto Pedro França/Agência Senado The minutes of the Central Bank meeting, released this Tuesday morning (27), opens up space for a drop in interest rates as early as August, analyze economists, former directors of the Central Bank and members of the economic team. The Copom also sends a message to the meeting of the National Monetary Council on Thursday, stating that a change in the inflation target may hold back the easing of the monetary policy. Some excerpts from the text caught the attention of both the market and the government. Specifically item 19 of the minutes, which exposes the divergence between the 9 members of the Monetary Policy Committee on the drop in interest rates. Share on WhatsApp Share on Telegram “During this debate, there was divergence in the Committee regarding the degree of signaling in relation to the next steps”, highlighted the minutes. with a consequent impact on expectations, it may help to build up the necessary confidence to start a parsimonious process of inflection at the next meeting.” Another group, more cautious, stated that “it is necessary to observe a greater re-anchoring of long-term expectations and accumulate more evidence of disinflation in the components more sensitive to the cycle.” Three directors of the Central Bank are appointed today with the most “cautious” voices. They have publicly manifested themselves, in recent weeks, about the risks of a drop in interest rates, something considered unusual, which was interpreted by the government as a message from the president of the Copom, Roberto Campos Neto, who is under pressure to lower the rate, today by 13.75%. The Copom communiqué, released last week, followed this line of greater caution. Which led the Central Bank to be the target of criticism once again, this time with the entry of the Minister of Finance, Fernando Haddad, in the chorus – Haddad was one of the voices that temporized with Campos Neto. The communiqué did not point out the dissenting internal voices, which now appear in the minutes. Last week’s decision increased political pressure in Campos Neto. Senators heard on the blog praise the BC president, but say that if interest rates are maintained at 13.75% in August, his political support will be fragile. The minutes released today, however, bring a respite to Campos Neto, making a cut of 0.25 percentage points more likely. There was also criticism, including from former directors, about the Central Bank’s communication, precisely because of the divergence of tone between the minutes, today, and the communication, last week. The minutes are lighter and the communiqué harder. In the opinion of some economists interviewed by the blog, the BC should already bring in the statement the possibility of easing that is included in the minutes. In another point, highlighted by the analysts, the minutes talk about the importance of anchoring expectations to the target so that there is a drop in interest rates. It would be a message for there to be no change in the inflation target. On Thursday, there will be a meeting of the National Monetary Council, when the 2026 target will be set. Planning and the president of BC), although a change is the least likely scenario today. “Inflation expectations showed some retreat, but remain unanchored, partly due to the questioning about a possible change in future inflation targets. The Committee assesses that decisions that re-anchor expectations can lead to faster disinflation.” The minutes also say: “In this context, the Committee reinforces that decisions that lead to the re-anchoring of expectations and that increase confidence in inflation targets would contribute to a faster and less costly disinflationary process, allowing for monetary easing.” Some economists, however, believe that the statement, although softer, already left the door open for a fall and showed a change in strategy. The minutes, now, would only intensify this movement, with the BC giving a little more details and pointing to a majority of members in favor of the cut in August. Also noteworthy was the increase in the estimate of the neutral interest rate (the one in which the economy neither accelerates nor slows down). “Following the broad debate and accumulation of evidence over the last few meetings, the Committee opted to raise the neutral real interest rate estimate from 4.0% pa to 4.5%”, declared the Copom in the minutes, in its item 6. This points to the possibility that the country will live with higher interest rates – with consequent impacts on unemployment. Regarding the framework, the Copom highlights the importance of approval, although it makes reservations. “The presentation and processing of the fiscal framework substantially reduced the uncertainty surrounding the fiscal risk”, states the minutes, which then carry the following weighting: “The Copom again emphasized that there is no mechanical relationship between the convergence of inflation and the approval of the fiscal framework, since the inflation trajectory remains conditional on the reaction of inflation expectations and financial conditions.” The minutes also deal with GDP growth, linked to agriculture, and inflationary pressures: “A moderate pace of growth is noted at the margin, with the exception of strong growth in the agricultural sector. In any case, it is anticipated that, after this greater growth in agriculture in the first quarter, due to the seasonality of the harvest, the process of moderation in growth in the more cyclical sectors of the economy will deepen over the following quarters.”

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