07/06/2024 – 13:06
The director of Monetary Policy at the Central Bank, Gabriel Galípolo, stated this Friday, 7th, that the meetings of the BC’s Monetary Policy Committee (Copom) do not just follow models and that there are always judgments to make decisions. Participating in a seminar in the postgraduate program in Economics at the University of Brasília (UnB) this Friday, he was asked about the observation of traditional models from economic literature for making monetary policy decisions.
Galípolo highlighted that traditional data consumption by Central Banks tends to be more conservative and that when BCs mention that the Phillips curve, for example, is flatter, it is an elegant way of saying that it has lost power, especially due to the unusual correlations that are observed .
“At Copom, the model doesn’t go there and spit out a result. There are nine people, there is a judgment, a decision that is bringing together this data, these models”, observed the BC director.
Disinflation in the world
Galípolo also stated that the world went through a relevant disinflation process in 2023, but in an unusual way. “We witnessed a disinflationary process around the globe with a level of activity that was still quite resilient,” said the director.
He commented on the scenario in the United States and said that since 2023 there had been fluctuations in expectations. Therefore, he highlighted that the North American process of disinflation is slower, but with a lower probability of recession. “(The Fed) is more successful in doing this without as much cost to society,” he said, citing the Federal Reserve, the US central bank.
The BC director also commented that the more resilient disinflation in the United States is associated with services and the job market. “Will it be possible to see disinflation without an increase in unemployment in the United States simply by normalizing chains?”, he noted.
Earlier, he highlighted the effort undertaken by Central Banks in the period from 2008 to now, with emphasis on the pandemic period. He also commented on the effects of betting on inflationary trends. “Historically, service prices run at a higher inflation rate than the price of goods,” he noted.
Disinflation in Brazil
The director of Monetary Policy at the Central Bank stated that Brazil’s position in relation to the disinflation process – with benign data, but unanchored expectations – puts the country in a more delicate position and bothers him and other directors of the monetary authority.
Galípolo commented that the postponement of the expected interest rate cut in the United States resulted in an increase in terminal interest rates in emerging markets. “What puts Brazil in a more delicate situation is that there was a change in the terminal interest rate, but we continue to observe the process of unanchoring expectations, in somewhat dissonant processes”, he observed.
He highlighted that the latest inflation data was benign, but the unanchoring of expectations persists – and this is what causes the BC to be concerned.
The director also cited resilient family consumption and an increase in the trade balance as points that continue to surprise the Brazilian economy, despite interest rates remaining at a restrictive level.
Galípolo also drew attention to the investment rate, assessing that it is necessary to increase its current level.
Privileged position
The director of the Central Bank also stated that the Brazilian economy is in a privileged position in relation to the challenges being imposed by the world. He commented on the country’s competitive advantages, such as the clean energy matrix.
To UnB students, Galípolo sought to convey an optimistic tone about the conduct of monetary policy and the Brazilian economy.
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