Two things take the sleep of Central Bank President Roberto Campos Neto today: vaccination in Brazil, which will dictate the pace of the economy’s opening, and the risk of uncontrolled public accounts. Both factors are on the BC’s radar to define the next steps of the Selic rate, Brazil’s basic interest rate, which after falling to the historical level of 2% per year rose to 2.75% to contain the advance of inflation. Now it is the Budget that can increase the fiscal risk and hinder the conduct of the interest policy. The budget law was passed by Congress with underestimated expenses and may become unenforceable.
Negotiations are underway between the government and Congress to end the impasse. “If the Budget passes the perception that it is unworkable, it is a factor that will concern the BC”, he says. In his conversation with Estadão, Campos Neto defends liberalism as a “solution for the country” and says that there was never an invitation to replace Minister Paulo Guedes, a speculation that circulates in the market from time to time.
Mr. I have already said that the lack of fiscal control is what keeps you awake after the expansion of vaccines. Did the federal budget with “makeup” aggravate insomnia?
I was concerned about the colon. Vaccination is what makes the economy open. For the BC, it is relevant to have an estimate of the opening of the economy to outline our scenario. The second point is tax (public spending). Looking at market interest curves, there is a very large premium related to fiscal uncertainty (investors charge more to finance the government because they question the sustainability of public accounts). Any uncertainty in relation to the Budget aggravates the fiscal uncertainty. I understand that the Budget is not yet closed and I am following to see what information will come out of the negotiation for us to use in our scenarios.
Why is this look at fiscal policy important?
It is very important that we send a message of credibility in relation to fiscal convergence ahead. We had a deviation caused by the pandemic, but it is very important to show fiscal consolidation. When we look at the reaction of the market and economic agents to tax news, it is a concern that is at the top of the list, it is what has been responsible for making Brazil’s risk high, differentiating the country from the rest of the countries. Today we are the most indebted country in the emerging world.
Did the 2021 Budget add one more ingredient to this risk?
If the Budget passes, the perception that it is unworkable or needs to supplement credit in order to reach the numbers is a factor that will worry the BC. It is a factor that will change the fiscal risk premium that is embedded in the macroeconomic variables and this hinders the conduct of monetary policy (the calibration of the basic interest rate to control inflation).
The BC surprised by raising interest rates with a stronger dose than expected, and the dollar did not fall as expected. Because?
The BC does not make any interest policy looking at the exchange rate. What matters is how the exchange rate movement affects inflation. The movement of interest was made with the scenarios that we had. On the growth side, we had good news. The fourth quarter result had been better than expected. In January, we already had a closed figure, which is surprising considering that there was less effect of the emergency aid. February, from preliminary data, is looking better. In March, April and part of May, we believe that there will be a drop in activity due to the worsening of the pandemic. In the inflationary part, what we try to communicate is that we had a big increase in the expectation of inflation in relation to 2021. A large part is due to temporary factors, but we understand that there was a contamination of inflation through the (productive) chains.
Critics point out that the BC left interest rates too low and ended up letting the dollar and inflation escape …
This type of criticism is normal. We always see very different opinions. When we were there running with a very negative growth forecast and there was an expectation of inflation of up to 1.5%, there was a great criticism that the Central Bank should have reduced interest rates much more. Now that there is an upsurge in inflation, there is a criticism that interest rates do not rise faster. Our mission is to always conduct meetings with technical arguments and try to be as transparent as possible. Recalling that our transparency process has increased.
How did the BC find itself facing a crossroads of having to raise interest rates in a scenario of contraction in activity?
Our primary goal is inflation. In our language, we make it clear that this increase will not strongly influence the growth of 2022. The BC controls short interest rates (the Selic rate), but has a set of other variables that are not under the control of the BC, such as the long interest curve. , exchange and other conditions. It is important to conduct the policy with credibility. It is what maximizes, over time, the process where inflation is less volatile, more stable and low.
In Brasilia there have been many political noises that mix with the economy. Does this bring insecurity and put pressure on the dollar and inflation?
It is more difficult to map political noise. As we are a technical body, what we use is information that can be quantified in our daily lives and the impact on monetary policy and the vision of the future. Political noise is part of it. It is difficult to comment, because I do not participate in these decisions. But we are always aware of how this impacts the risk premium and expectations.
President Jair Bolsonaro always expresses concern about rising prices. What is your relationship with the president in relation to this very sensitive topic?
I have always said that I have total freedom to work, there are conversations where I present the scenarios. Inflation is a concern for any president anywhere in the world. Even more so in the emerging world, where food inflation greatly erodes the purchasing power of the lowest-income population. But the formulation and presentation of scenarios is always done with the intention of clarifying and taking a technical view of the BC. That is how we have always acted.
Mr. it has gone out into the field in conversations with political leaders in defense of measures. On the day of the emergency PEC vote, he went to a meeting at the house of the Mayor, Arthur Lira. This stance receives criticism and also support. How do critics see that there is politicization in BC?
When I came to the government, I asked my predecessor (Ilan Goldfajn) what the relationship with the political world was like. He said: “Look, we have an agenda, we have periodic meetings to explain. Much of it has to pass the Congress ”. There is a relationship to explain the projects. And we continue to act in the same way. It is part of it.
Minister Paulo Guedes always says that mr. is 100% loyal to him. But every time he is in the frying, the first news that appears is that Mr. is a candidate to stay in his place. How do you see these speculations?
We spend a lot of time talking about people and little time talking about ideas. I always prefer to talk about ideas. There are people who are more aligned with my ideas. I would say that Minister Paulo Guedes is 100% aligned with the ideas. Obviously it is impossible to find two economists who think exactly the same about everything, but, in general, we have a great alignment of ideas. And every debate I have, not only with the minister, but with everyone else, is in the field of ideas. I believe in this movement, which was initiated, which is that of liberals. The way out to Brazil is less public and more private. There is a phrase from a Chilean economist that I like a lot, which is: “Brazil has spent many years trying to find public solutions to private problems”. But what we need is to find private solutions to public problems.
Mr. did not answer the question about replacing Guedes.
There was never an invitation. I have an agenda at BC to follow. I have a mission in BC to fulfill.
Has the government’s liberal policy not been weakened after the episodes of intervention at Petrobrás, at Banco do Brasil?
I prefer to talk about the things that are within my reach. At BC, we have always had total freedom of action. Total independence. There is an understanding that it is a technical body. We always have an open debate with society and the government. I believe that liberalism is the solution, because the Brazilian State is intoxicated by its size. We need to gain efficiency by decreasing its size, not increasing it. There have been attempts in the past to gain efficiency through augmentation, and it has not worked.
Isn’t there a setback in the liberal agenda?
I see a great process of negotiation that happens in every political system, in every democracy, where it has different interests. And where we from the government, from the economic team, try to demonstrate, because we believe that our ideas make sense. This is the way out to the country. Now, I am responsible for the BC. The BC does monetary, foreign exchange policy, it does the credit part. Our BC agenda is towards a liberal agenda, which is to create banking competition, to create a sustainability agenda. Our agenda is all linked to liberal thinking. Instead of commenting on the others, I comment on mine. What I can bring as a contribution within the position I occupy. It has proved to be about competition, inclusion, increased financial education.
The information is from the newspaper O Estado de S. Paulo.
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