by Marcela Ayres
BRASÍLIA (Reuters) – The president of the Central Bank, Roberto Campos Neto, said on Monday that the country needs to turn the page on programs it has adopted to fight the pandemic, probably mentioning emergency aid at a time when a new extension benefit is discussed again.
By participating in an event promoted by the São Paulo Trade Association, Campos Neto reinforced at various times that the country needs not only to strengthen its commitment to the sustainability of public accounts, but also to improve the narrative about the reforms that have been carried out so far despite the coronavirus crisis.
For the BC president, the fiscal signal will help in the fight against inflation.
Campos Neto pondered that a plan to inject resources can be conceived with the idea that it will help the economy to grow, but it can actually have the opposite effect depending on the situation of the public accounts.
If accompanied by a drop in credibility, such a move would ultimately affect market prices and that would more than offset the benefit of having the money in circulation, he argued.
“So it’s not just about understanding that I’m going to keep pumping money into the economy and that this is actually going to be the big gold outlet. There is no such thing. On the contrary, there is a time when you reach an inflection point where doing more means less”, he stated.
“At this moment, we need to gain credibility, we need to communicate what the fiscal will be, what the medium-term plan is, and I think it is important now to turn the page on this issue that we have, which is the continuation of what was done in terms of the confrontation program between now and the end of the government”, he added.
Campos Neto indicated that part of the fight against inflation also involves the fiscal, since when the long interest curve falls – a reflection of the improvement in the perception of agents about the health of public accounts –, the same monetary policy movement generates more effect on the economy.
“Credibility is what makes monetary policy communication, it’s what made me able to communicate what I do in the short part of the curve for all the other ingredients. So credibility is very important”, he said.
“Fiscal is very important at this moment for us to gain credibility in order to increase the transmission of monetary policy”, he added.
DOLLAR AND INFLATION
Also present at the event, the special advisor of the Ministry of Economy Guilherme Afif told those present that he had previously talked to Campos Neto, on the phone, about inflation and the impact of the high dollar on prices. According to Afif, the BC president would have replied that “the medicine is fiscal and vaccine”.
“We are holding the inspector very hard. It’s hard, it’s not easy, on the eve of an election to hold the inspector is not easy”, admitted Afif.
The special advisor to the Minister of Economy, Paulo Guedes, reinforced the need to set up a task force for “transmission of security” to prepare the ground for the fall of the dollar, which would have a strong impact on the reduction of inflation. He also said that he believed that the currency could not be above 4.30 reais, compared to the current level of more than 5.40 reais.
“It seems to us that the dollar is linked to the political noise, to the insecurity that our current policy generates,” said Afif.
Leaders of the Chamber of Deputies and the government are already discussing the possible extension of the emergency aid, sources with knowledge of the negotiations, which occur amid difficulties of the Federal Executive in finding a budgetary solution to create a social program to replace Bolsa Família, told Reuters. Brazil Aid.
On the dollar, Campos Neto pondered that the depreciation of the real this year is on average and even “a little better” compared to other countries. In the year, the real fell about 4% against the US currency, against a devaluation of almost 23% in 2021.
Campos Neto defended that the first wave of inflationary surprise occurred in 2020, being linked to food and the behavior of the exchange rate, with the currency having depreciated “a lot” last year.
According to the BC president, the second shock to inflation, in 2021, was basically due to monitored prices, with a strong influence from the rise in electricity, which spreads through the production chains.
As for fuel prices, he assessed that they did not yield in the country even when international prices stabilized, being impacted by the rise in freight and ethanol.
The president also said that he was “totally misinterpreted” when he made a recent comment on Petrobras’ pricing policy, noting that the transfer seen in the price of fuel in some countries was slower than in the case of Brazil.
“That was in a positive sense, of saying that we are more of a market economy,” he said. “Obviously the Central Bank does not comment on Petrobras policy.”
Campos Neto admitted that core inflation is rising “well above the desired level”, with an element of greater persistence.
“That’s why we’ve been more incisive with interest,” he said.
At the end of September, the BC raised the Selic by 1 percentage point, to the current level of 6.25% per year, and indicated that it should repeat the dose at the meeting of the Monetary Policy Committee (Copom) this month.
(By Marcela Ayres; Edited by Isabel Versiani and Maria Pia Palermo)
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