Tax rule has no direct relationship with interest, says BC – 03/28/2023 – Market

A “solid and credible” fiscal rule can help in the disinflation process by producing effects on expectations, although the presentation of the new framework has no direct relationship with the interest rate policy, said the Central Bank’s Copom (Monetary Policy Committee) according to the minutes released this Tuesday (28).

“The committee will continue to monitor the design, processing and implementation of the fiscal framework that will be presented by the government and voted on by Congress. The Copom emphasized that there is no mechanical relationship between inflation convergence and the presentation of the fiscal framework, since the first remains conditional on the reaction of inflation expectations, public debt projections and asset prices”, he said.

“The committee highlights that the materialization of a scenario with a solid and credible fiscal framework can lead to a more benign disinflationary process through its effect on the expectations channel, by reducing inflation expectations, uncertainty in the economy and the risk premium associated with domestic assets,” he added.

The BC collegiate also highlighted that the disinflation process requires “serenity and patience” in the conduct of interest rates, since the dynamics driven by excess demand shifted to the services sector.

“There is thus an inflationary dynamic driven by excess demand, initially in goods and which has now shifted to the services sector, and which, therefore, requires moderation in economic activity for the monetary policy channels to act,” he said.

“Such a process demands serenity and patience in conducting monetary policy to ensure the convergence of inflation to its targets.”

Last Wednesday (22), the Central Bank did not give in to pressure to reduce interest rates, it went against the government of Luiz Inácio Lula da Silva (PT) and maintained the basic rate (Selic) at 13.75% per annum.

The BC’s collegiate decision and the harsh tone of the communiqué were the target of criticism from the president, who said that “history will judge” the BC’s decisions, and from members of the first echelon of the government.

Minister Simone Tebet (Planning and Budget) said last week that she expected an “impartial and fair meeting with Brazil” and that it was necessary to wait. Already this Monday (27), the eve of the disclosure of the new document, she said that the statement sent a wrong message.

His public criticism was added to the comment of Minister Fernando Haddad (Finance), who said he considered the tone of the BC’s statement “very worrying”, and Minister Alexandre Padilha (Secretary of Institutional Relations), who classified the Selic at 13.75% per year as “disproportionate”.

The president of the PT, Gleisi Hoffmann (PR), even went to social networks to question, in a rhetorical way, whether the president of the institution, Roberto Campos Neto, did not understand his “commitment” to Brazil. The trade union centrals also reacted negatively.