The Minister of Finance, Fernando Haddad (PT), and the Minister of Planning, Simone Tebet (MDB), met this Thursday (16) with the President of the Central Bank, Roberto Campos Neto, in what will be the first meeting of the National Monetary Council (CMN) since President Luiz Inácio Lula da Silva (PT) took office.
The CMN is the collegiate body that establishes the country’s monetary and credit policy guidelines. His meeting became the focus of the press at the start of the new government because he also defines inflation targets for the economy. It influences, therefore, the basic interest rate, the Selic, and the pace of growth – themes of a heated public debate waged by President Lula and Campos Neto in recent days.
::Understand the dispute between Lula and the Central Bank::
Lula won the election promising a return to growth. He, however, has complained that the current Selic level in the country – 13.75% per year – hinders this recovery.
According to him, with interest rates at this level, it is more expensive for entrepreneurs to invest and for consumers to finance goods. In other words, the economy does not grow.
Campos Neto, in turn, has argued that the Selic got where it is to try to contain inflation. The BC is the state body responsible for its control. For this, it mainly uses the basic interest rate, precisely to curb consumption and investment.
::Popular movements are preparing actions against BC policy and for raising the minimum wage::
In the midst of this economic debate, political pressure on Campos Neto grew. A manifesto signed by several economists such as André Lara Resende, one of the “fathers” of the Real Plan, was launched charging lower interest rates. The bench in the PT Chamber joined a campaign criticizing the BC. The president of the Central Única dos Trabalhadores (CUT), Sérgio Nobre, even asked for Campos Neto’s resignation.
The Selic rate has a direct influence on other interest rates practiced in the economy. When the @BancoCentralBR keeps interest rates high there is also an impact on overdraft, credit card and loan interest. #InterestBaixosJá
— PT na Câmara (@PTnaCamara) February 14, 2023
And, in this scenario, Campos Neto – appointed by former President Jair Bolsonaro (PL) and with a mandate until 2024 – meets with Lula’s ministers.
What to expect?
The agenda of the CMN meeting is not public. It is defined by the president of the collegiate, the Minister of Finance, a position currently occupied by Haddad.
There is an expectation – albeit low – that the meeting may review the inflation targets established during the Bolsonaro government for this and the coming years. Leaving the targets more lenient, the Central Bank would not need such high interest rates to contain prices.
Inflation data for January point out that, in 12 months, it has accumulated an increase of 5.77%. The CMN target for the end of 2023 is 3.25%, with the possibility of reaching 4.75%.
::Inflation reaches 5.79% in 2022 and exceeds target in 2 of the 4 years of the Bolsonaro administration::
For 2024, it is even lower: 3%, possibly reaching 4.5%.
For Mauricio Weiss, economist and professor at the Federal University of Rio Grande do Sul (UFRGS), these stipulated indices are incompatible with the national reality. Therefore, he defends an amendment, although he does not believe that it will be made this Thursday.
“I understand that this change in the target would be positive because it is very low today”, he said. “This target makes the monetary policy that the BC needs to practice too much.”
:: Increase in food prices puts pressure on inflation and the crisis in BC ::
“The targets for 2023 and 2024 are unrealistic and unnecessarily low, but I don’t believe they will be changed”, ratified Simone Deos, professor at the Institute of Economics at the State University of Campinas (Unicamp).
Haddad hasn’t spoken about goal changes. He has already said that the ideal is for inflation to move towards pre-defined indices.
Campos Neto, in turn, said he was against the change in an interview with the program Roda Viva, from TV Culture, last Monday (14). The president of the BC gave signs that he admits “improvement” in this system of targets. However, he pondered that messing with it at this time could bring harm.
“If we make a change now, without an environment of tranquility in which the goal is easily achieved, what will happen is that you will have an effect contrary to the desired one”, he said.
“Changing the target would mean telling economic agents that the government will be more flexible with inflation and this could worsen expectations”, explained Miguel de Oliveira, executive director of the National Association of Finance, Administration and Accounting Executives (Anefac), which also does not believe in change.
Doubt gets in the way
Oliveira points out that just discussing the target has already caused some “discomfort” in financial market agents who demand a government commitment to financial stability and also control of their accounts.
Weiss agrees that the debate on interest rates, inflation and the Central Bank ends up creating certain “noises”. He pointed out, however, that it is even worse if “noise” is created and nothing is changed.
::Forecasts point to rising inflation and reinforce pressure on BC::
For him, if the government really intends to change the inflation targets, it should change now. Opponents of the measure would complain but adapt. The country’s economic environment would benefit from lower interest rates.
“The expectation in itself is not good because it generates uncertainty”, he explained. “Now, what matters is whether there will really be change. If there is change, it compensates for the uncertainty.”
::Food inflation is an emergency, but requires structural changes::
Deos also says that living with high interest rates is worse than living with criticism from those who are against changing the target. “This ‘expectation game’ is way over the top,” she said.
“Economics is not a financial market in which you win and lose based on anticipating what the average of other investors will do. This affects the dollar and stock prices in the short term. But it has little to do with people’s real lives.”
Editing: Rodrigo Durão Coelho
