The President of the central bank, Roberto Campos Neto, said on Thursday night that the numbers and fiscal expectations have improved recently, which explains part of the real’s more benign behavior, and that the BC will do “whatever it takes” to ensure that the inflation.
The statements were made in a recorded interview and broadcast by the CNN Newspaper and suggested a more optimistic tone on the part of the BC president, who spoke of positive surprises with the economy, less impact on the activity coming from the current moment of the pandemic, adjustment in the accounts expectations of accelerating the rate of vaccination and “reasonable” reopening of the economy in the second half.
He recalled consecutive surprises with higher than expected revenue figures, in a context in which analysts expect public debt to close this year closer to 85% of GDP, below the approximately 100% forecast at the beginning of the year.
“So, in fact, the recent fiscal part in terms of risk premium has improved. This even explains a little the better behavior that the exchange rate has had recently,” said Campos Neto.
“When we start to see that the collection is surprising, that part of the money was not spent, that in the end the trajectory that will result from all the government’s actions is a much better trajectory, the exchange rate also responds.”
The head of the BC highlighted what he called positive surprises with the economy in the first and second quarters and recalled that some financial institutions began to revise upward the estimates for the performance of the GDP in 2021, with migration to an average of 4% of despite the second wave of the pandemic and the concern now with new variants of the coronavirus.
“One thing that is very clear in our studies is that for the same level of social distance, the economic impact has been less,” he said. “The growth has surprised upwards, and we do not understand that the necessary adjustment (in interest) will slow this growth.”
The BC president responded to a question about whether the current monetary normalization cycle could affect the pace of economic expansion. “We are vigilant about all variables,” he said, adding that, with credibility, high interest rates can reduce the long-rate curve, which in fact impacts investment finance in the economy.
Campos Neto stated that the fiscal improvement has occurred on the revenue side, and not on the expenditure side, and that for foreign investors it is important for Brazil to show discipline in spending. But he considered that spending on the pandemic is “justifiable” and that “no government or agent can have solid arguments against it”.
“Other types of spending that are not associated with the pandemic will be punished by increasing risk premiums, in which case Brazil is differentiated from other countries that follow the course of fiscal discipline.”
INFLATION, INTEREST AND “FICO”
Campos Neto took the opportunity to reiterate the BC’s vigilance over inflation and said he noticed a recent stabilization in the prices of raw materials in the world, whose increase helped to boost price indices in Brazil.
“Our target is inflation. We are vigilant with inflation, with the components of inflation, with the element of dispersion, and we will do whatever is necessary to ensure that the Central Bank reaches its inflation target.”
On the interest side, Campos Neto considered the partial nature of the monetary policy adjustment and said that it is due to a dimension of greater transparency, not due to an indication of monetary policy.
“If at any time there is an understanding that this is no longer true, we will change the language and we will adapt to always be sure that we are meeting our inflation target.”
Asking if, with the autonomous BC, he would stay until the end of his mandate, in 2024, Campos Neto was adamant: “Of course, I will”.
“Obviously, I stay until the last day of the mandate and I think that this institutional gain, once checked, once observed, will make the risk premium, even in the coming years, in the next generations, remain lower, that there will always be an independent Central Bank president, who will make decisions independently, knowing that the cycle of the decision he is going to make, that the institution Central Bank is going to make, is different from the political cycle. “
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