In an interview with Jornal da Manhã, from Jovem Pan News, the economist commented on the struggle between Lula and the president of the Central Bank, Roberto Campos Neto, and gave his opinion on the current economic outlook in Brazil
This week, the National Monetary Council (CMN) meets for the first time in 2023 under pressure from the government to change the inflation target. This Monday, the president of the central bank (BC), Roberto Campos Neto, stated that he was against the review and indicated that Brazil will move in the right direction if the economic team continues to seek reforms and a new model to ensure public accounts. To talk about the current economic panorama, Jornal da Manhã, from Jovem Pan News, interviewed the former Secretary of Finance of São Paulo, Felipe Salto. Warren Rena's chief economist praised the BC president's stance and pointed out that, in relation to the Selic rate, for example, other factors influence its maintenance in addition to the bank's actions: “When the dollar becomes much more expensive, everything that The agent that consumes imported final goods becomes more expensive, everything that the industry consumes in terms of components to produce and sell here becomes more expensive. That’s why the dollar is also a fundamental variable.”
“When you start to alleviate this picture of friction that is natural between the Central Bank and other areas of government, everything will improve. The dollar has all the conditions to stay below R$ 5 if the fiscal agenda continues to advance. It must be said, the Monetary Policy Council minutes themselves correctly recognize the value of the fiscal package announced in January. In my account, here at Warren Rena, we have an estimated effect of the package and the collection announced in January of the order of R$ 64 billion this year”, he explained. For Salto, Campos Neto's statements to ease the climate with President Lula (PT) go in the right direction: “I thought Campos Neto did very well. He is very technical, he was chosen for these reasons, he has played a very important role. He made a gesture, I think correctly, to enforce the law on the independence of the Central Bank and explained what independence is.”
Regarding the CMN meeting, the former São Paulo Finance Secretary did not rule out the possibility of a review of the inflation target: “It is neither a venial nor a mortal sin for you to change the inflation target. The important thing is, once this is done, that inflation expectations converge to low and reasonable inflation levels next year, especially in the following two years. Today, what we see is that the market, if you look at the Focus survey, there was a slight increase in inflation projections, but at a reasonable level. I think that after putting out the fires, this water that Campos Neto put on the boil and the positions of Minister Fernando Haddad, which, it must be noted, are quite considered. This will help to ensure greater dialogue and harmony between the monetary and fiscal sides of economic policy, as it should be.”
The economist also commented on the struggle between Lula and Roberto Campos Neto regarding the maintenance of Selic rate at 13.75% and projected that the indicator could go through a downward cycle from the second half of the year onwards: “President Lula has every right to talk about the economy and interest rates. If you look at history, other presidents did this, and political ministers from other governments, more to the left and more to the right. The point is: the Central Bank has to continue doing its job, regardless of these statements. Politics also has this side of signaling to voters, to the base. But, as we know, the interest rate is a result of several forces”
“I understand that, in the second semester, if we manage to progress until the end of the first semester with the fiscal rule, plus the good discussions that are advancing and being addressed in Congress within the scope of tax reform, all of this can contribute to the agent have a lower Selic, perhaps even a beginning of a reduction cycle, under the conditions we are discussing here, in the second half of the year. This is positive for the economy, we all want lower interest rates. Because lower interest rates facilitate investment, make credit cheaper, not only for investment but for consumption, and help the economy to recover. This is a year of low growth, this was already contracted since last year, the public debt rose this year, but, with the house in order, it will be easier to go through this difficult period”, he argued.
Despite the attacks made by Lula on the BC, Felipe Salto highlighted that the performance of the economic team, led by the Minister of Finance, Fernando Haddad, has given important signs that it will handle the Brazilian fiscal issue: “Without an organized fiscal system, we are not going anywhere. In this regard, at the end of last week there were also two good signs. Two secretaries of the Minister of Finance Fernando Haddad — I am referring to the Secretary of the National Treasury, Rogério Ceron, and the Secretary of Economic Policy, Guilherme Mello — indicated that the spending ceiling will be modified, but there will be a rule for expenses and that eventually excesses collections can be used so that, in a more flexible model, you can have additional expenses when there is this excess collection. This goes in the direction of good fiscal rules, what the literature and the International Monetary Fund recommend.”
“In the midst of all this smoke, all this noise, I think we have to make a reading that the government has the possibility of having some breathing space to implement a good economic policy. It is necessary to have this fiscal rule so that we can coordinate both things, so that market expectations are not discouraged. Yesterday, Campos Neto, president of the Central Bank, said something very salutary, which I think not everyone is aware of. Selic is not the interest rate that matters at the end of the day, because it is a reference. If the Selic is at 13.75%, as it is today, but the long interest rates, as we call them for different terms, start to rise, there is no point in me halving the Selic, for example, because these long interest rates will only increase further more. The market prices risk, it prices uncertainty. Let’s see, from now on, with these signs on each side, how things will progress”, he detailed.