Brazil’s Central Bank president reinforces the need to raise interest rates and ‘unanchor’ inflation

RIO DE JANEIRO, BRAZIL – In conversations with investors in the United States, the president of the Brazilian Central Bank (BC), Roberto Campos Neto, reinforced that the Monetary Policy Committee (Copom) is expected to promote a one-percentage-point increase in the Selic rate at its meeting on May 3-4, the same magnitude chosen by the collegiate for the last meeting. Currently, the basic interest rate is 11.75% per year.

The information is contained in the president’s presentation text released earlier by the Central Bank. Currently, Campos Neto is giving a lecture organized by Bank of America in Washington. Tomorrow morning, he has another meeting with investors, organized by XP Investimentos, also in Washington.

According to the Central Bank press office, the same presentation will be used on both occasions. The events take place on the margins of the International Monetary Fund (IMF) spring meeting and are closed to the press.

INTEREST RATES REVERBERATE UNCERTAINTIES

As already stated in other official Central Bank documents, the president of the institution explained that the Committee believes that the decision to continue increasing the Selic “reflects the uncertainty surrounding its prospective inflation scenarios, an above-normal variation in the balance of risks and is consistent with the convergence of inflation to its target throughout the relevant monetary policy horizon, which includes 2022 and, mainly, 2023”.

Considering this, the BC’s inflation projections, and the risk of unanchoring long-term expectations, it is “appropriate to continue advancing significantly in the monetary tightening process into an even tighter territory.”

Still, Campos Neto added that the moment requires serenity to assess the size and duration of the current shocks.

“If the shocks prove to be more persistent or larger than anticipated, the Committee will be ready to adjust the size of the monetary tightening cycle,” he warned, adding that Copom will persist in its strategy until the disinflation process and the anchored expectations around its targets are consolidated.

INFLATION SPREAD AROUND THE WORLD

In the same way, the presentation also stated that the president of the Central Bank commented on the support of governments during the coronavirus pandemic and the current process of monetary tightening around the globe. In this way, he pointed out that the rise in prices has generalized, both in emerging and advanced economies.

Campos Neto also talked about the increase in demand for energy and pointed out that investments in the oil and metals area remain at low levels. The BC president dedicated space to the impact of green inflation and the conflict between Russia and Ukraine.

DOMINO: WAR, FERTILIZERS, AND INTEREST RATES

According to the document, the clash has taken much larger proportions than initially imagined, and it is the first war with the intensive use of social networks. One of the consequences of the military operation in Eastern Europe, according to him, is even more pressure on the energy market not only in the short but also in the medium and long term.

One of the presentation slides is dedicated to the fertilizer market in Brazil. Campos Neto pointed out that the country is highly dependent on imports of this type of product and that the crisis between Russia and Ukraine aggravates the situation.

OTHER ISSUES THAT AFFECT THE INTEREST RATE DECISION

The president of the Central Bank also highlighted the projections for growth and inflation in the country, presented a picture of the labor market situation, another on the behavior of the exchange rate, and, on the fiscal issue, emphasized that there was revenue growth in 2021.

“The good fiscal performance continues in 2022, which favors the expectation of a good primary fiscal result,” he predicted. At the end of the presentation, Campos Neto outlined an overview of the BC# Agenda, the Bank’s technology agenda.

With information from Estadão

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