In an interview with Jornal da Manhã, from Jovem Pan News, the economist commented on the arm wrestling match between Lula and the president of the Central Bank, Roberto Campos Neto, and gave his opinion on the current economic scenario in Brazil
In this week, the National Monetary Council (CMN) meets for the first time in 2023 pressured by the government to change the inflation target. On Monday, the president of the central bank (BC), Roberto Campos Neto, said he was against the review and indicated that Brazil will walk 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 the Young Pan News, interviewed the former finance secretary 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 performance: "When the dollar becomes much more expensive, everything that agent consumes imported final goods is more expensive, everything that the industry consumes in terms of components to produce and sell in Brazil is more expensive. That is why the dollar is also a fundamental variable”.
“When you start to ease this situation of friction that is natural between the Central Bank and other areas of government, it all gets better. The dollar has all the conditions to stay below R$ 5 if the fiscal agenda continues to advance. Needless to say, 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 around R$ 64 billion that 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 Central Bank independence law and explained what independence is”.
With regard to the CMN meeting, the former finance secretary of São Paulo did not rule out the possibility of revising the inflation target: “It is neither a venial nor a mortal sin for you to change the inflation target. The important thing is, having done that, that inflation expectations converge to low and reasonable levels of inflation next year, in the following two years, mainly. 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 it's like putting out fires, this water that Campos Neto put on the boil and plus the positions of Minister Fernando Haddad which, it must be noted, are very thoughtful. This will help for greater dialogue and harmony between the monetary and fiscal sides of economic policy, as it should be”.
The economist also commented on the arm wrestling 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 semester: “President Lula has every right to talk about the economy and interest rates. If you look at history, other presidents did this, and ministers from the political area of other governments, more to the left and more to the right. The question is: the Central Bank has to continue to do its job, regardless of these declarations. 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 half, if we manage to advance by the end of the first half with the fiscal rule, plus the good discussions that are advancing and being addressed in Congress in the context of tax reform, all of this can contribute to that agent have a lower Selic rate, perhaps even the 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, it makes credit cheaper, not only for investment, but for consumption, and helps the economy to recover. This is a year of low growth, this was already contracted since last year, the public debt rises this year, but, with an organized house, it is easier to go through this period of hardship”, he argued.
Despite Lula's attacks on 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 deal with the Brazilian tax issue: “Without the organized tax, we are not going anywhere. In this matter, at the end of last week there were also two good signals. 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 of collection can be used so that, in a more flexible model, you can have an additional expense when there is an excess of collection. This goes in the direction of good fiscal rules, what the literature recommends and the International Monetary Fund”.
“In the midst of all this smoke, all this noise, I think we have to make a reading that the government gains a chance to have a breath to make a good conformation of economic policy. It is necessary to have this fiscal rule so that we can coordinate the two things, so that market expectations do not become 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 that matters at the end of the day, because it is a reference. If the Selic is at 13.75%, as it is today, except that long interest rates, as we call them for different terms, start to rise, there is no point in halving the Selic rate, for example, because these long interest rates will only increase even further more. The market prices risk, prices uncertainty. Let's see, from now on, with these signs on each side, how things are going”, he detailed.