Relevant drop in future interest rates makes room for Selic cut ahead, says Campos Neto

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BC president stressed, however, that the autarchy needs to act with ‘parsimony’ and that rates cannot be lowered artificially. The president of the Central Bank, Roberto Campos Neto Mateus Bonomi/Agif/Estadão Content The president of the Central Bank, Roberto Campos Neto, highlighted this Monday (12) that the future yield curve has had a “relevant drop” in Brazil and indicated, without specifying the moment, that this makes room for a cut in the basic Selic rate ahead. “The futures interest curve has had a relevant drop. This means that the market is giving credibility to what is being done, which opens space for monetary policy action ahead”, said Campos Neto. He pointed out, however, that the Central Bank needs to act with “parsimony” and that interest rates cannot be artificially lowered, under the risk of not achieving the desired result. The BC president’s comments were made at a retail sector event in São Paulo and increase expectations for the decision of the Monetary Policy Committee (Copom), which takes place next week. Market agents have also reduced the premiums embedded in the Brazilian yield curve, in the wake of the latest inflation data and optimism surrounding the progress of the new fiscal framework in Congress. Currently, the pricing on the future interest rate market curve has indicated that the Central Bank should start cutting the Selic rate, currently at 13.75% per annum, in August, by 0.25 percentage points. In his speech, Campos Neto said that the market has reacted well to the government’s fiscal framework, with a drop in future interest rates and the exchange rate “going in the right direction”. He also pointed out that the country will probably have deflation in June, but then the price indicator should rise, causing inflation to be between 4.5% and 5% in 2023. “Market inflation is still above the target, but are falling,” he said. At the same time, Campos Neto once again stated that core inflation, which disregards more volatile prices, remains high in Brazil and in other countries in the region, noting that they are “the most worrying part” of the current scenario. “Core inflation rose a lot, but it is falling very slowly, especially in Latin America”, said the BC president. “We see places where we have core inflation still running very high, like Chile and Brazil,” he added. Campos Neto also mentioned the impulse given by the Covid-19 pandemic to inflation in the energy sector, due to the increase in the production of goods. According to him, in this aspect Brazil showed an improvement due to the incidence of rains. “We have a green flag”, he recalled, referring to the flag system in force in Brazil, which makes energy more expensive in times of drought. The Copom will meet on Tuesday and Wednesday of next week, and the prevailing bet on the market is to maintain the basic interest rate at 13.75% per annum. Credit The president of the Central Bank also defended the current credit scenario. According to him, “although interest rates in Brazil are high, the credit slowdown is much smaller than in the rest of the world”. Campos Neto also stated again that the estimate is for an 8% growth in credit in 2023, after an increase of 13.5% in 2022. “In companies, the credit slowdown in Brazil is smaller than in much of the world”, told the businessmen. During the event, Campos Neto was also asked about the cost of debt rollover in the country today, seen by some event participants as a consequence of the current Selic level. In response, Campos Neto argued that cutting the Selic without conditions for doing so could have negative effects. “If the Selic falls without credibility, it will not reduce your credit rollover cost [empresários], will increase”, he said. “We need to drop the Selic with credibility.” Still according to the central banker, studies show that inflation is more negative for retail than the interest rate hike itself. “If interest is bad for retail, inflation it is much worse”, he said. “I understand dissatisfaction with interest rates, but our mandate is to make inflation converge”, he added, pondering that “cutting interest rates artificially will not bring the expected results.” The debate is quite technical”, he added. Growth Campos Neto also pointed out that the growth expectation for China, which was “very high”, was cooling down. In the case of the euro zone, he pointed out that there was a recent repricing in relation to the “Data from the American economy have come out much stronger, mainly in terms of jobs”, he added, noting that, in the case of Brazil, the revisions have been in the direction of a greater increase for the Gross Domestic Product (GDP) .

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