Effects of interest rate hikes should be felt in the 2nd semester, says BC director

Effects of interest rate hikes should be felt in the 2nd semester, says BC director

According to Bruno Serra, even with the increase in the Selic rate, the country should grow at least 1% in 2022

The director of Monetary Policy of the Central Bank (BC), Bruno Serra, said this Monday, 16, that the effects of the interest rate increase, which reached 12.75% per year, should be felt in the economy from the second half of the year. . According to him, even with the increase in the Selic, the country should grow at least 1% in 2022. The statements were made online during the event “Annual Brazil Macro Conference”, organized by the Goldman Sachs bank.

“With the improvement of external accounts, unemployment falling and the capital market consistent, we can imagine better perspectives”, said Serra.

The BC director also stated that part of the economic growth should take place based on the recovery of the services sector. “There is still something to happen in the resumption of services. If I had to bet, GDP growth in 2022 would be more than 1%. Investment surprises and grows well since the post-pandemic resumption,” he said.

Comparison with other countries

Bruno Serra cited the massive fiscal stimulus made by the Brazilian government in the pandemic, superior to that of its peers, among the reasons that forced the municipality to raise interest rates earlier than most emerging countries. He also pointed out the depreciation of the real against the dollar, the water crisis, which had a heavy impact on energy tariffs, and the “more ingrained” indexation than that of peers, thus amplifying the inertial effects of inflation, in explaining why Brazil began the fight against high prices in a worse situation than that of other emerging markets.

“The challenge was tougher”, declared Serra, recalling, as if in an outburst, that the global inflationary shock hit Brazil after the country poured more than R$ 600 billion in fighting the pandemic. “Brazil was in a more difficult situation than peers until recently.”

When talking about the future, he outlined, however, a disinflationary scenario, pointing out the trend towards normalization of the variables that influence prices. Among them, he noted that the exchange rate, an important buffer for the impact of escalating global inflation, returned to “perform” better, taking into account the performance of the real against the dollar when compared to the performance of other currencies in emerging economies.

Despite market assessments that the government, with measures to encourage consumption, isolated the BC in the face of inflation, Serra judged that fiscal policy has no longer hampered the conduct of monetary policy. “From now on, we start to normalize”, pointed out the BC director.

Differences between forecasts

The Central Bank’s Monetary Policy director stated that the differences between the market’s and the monetary authority’s forecasts for inflation are concentrated in industrial and food prices. According to him, the market predicts that the normalization of production chains should take longer than the BC estimates.

The director of Monetary Policy of the Central Bank (BC), Bruno Serra, said this Monday, 16, that the effects of the interest rate increase, which reached 12.75% per year, should be felt in the economy from the second half of the year. . According to him, even with the increase in the Selic, the country should grow at least 1% in 2022. The statements were made online during the event “Annual Brazil Macro Conference”, organized by the Goldman Sachs bank.

“With the improvement of external accounts, unemployment falling and the capital market consistent, we can imagine better perspectives”, said Serra.

The BC director also stated that part of the economic growth should take place based on the recovery of the services sector. “There is still something to happen in the resumption of services. If I had to bet, GDP growth in 2022 would be more than 1%. Investment surprises and grows well since the post-pandemic resumption,” he said.

Comparison with other countries

Bruno Serra cited the massive fiscal stimulus made by the Brazilian government in the pandemic, superior to that of its peers, among the reasons that forced the municipality to raise interest rates earlier than most emerging countries. He also pointed out the depreciation of the real against the dollar, the water crisis, which had a heavy impact on energy tariffs, and the “more ingrained” indexation than that of peers, thus amplifying the inertial effects of inflation, in explaining why Brazil began the fight against high prices in a worse situation than that of other emerging markets.

“The challenge was tougher”, declared Serra, recalling, as if in an outburst, that the global inflationary shock hit Brazil after the country poured more than R$ 600 billion in fighting the pandemic. “Brazil was in a more difficult situation than peers until recently.”

When talking about the future, he outlined, however, a disinflationary scenario, pointing out the trend towards normalization of the variables that influence prices. Among them, he noted that the exchange rate, an important buffer for the impact of escalating global inflation, returned to “perform” better, taking into account the performance of the real against the dollar when compared to the performance of other currencies in emerging economies.

Despite market assessments that the government, with measures to encourage consumption, isolated the BC in the face of inflation, Serra judged that fiscal policy has no longer hampered the conduct of monetary policy. “From now on, we start to normalize”, pointed out the BC director.

Differences between forecasts

The Central Bank’s Monetary Policy director stated that the differences between the market’s and the monetary authority’s forecasts for inflation are concentrated in industrial and food prices. According to him, the market predicts that the normalization of production chains should take longer than the BC estimates.

“The majority’s preference is for less fluctuation in the basic rate. If the Selic rate can fluctuate less, it is better. A longer interest rate is better, but it’s not always possible,” he said.

Serra also declared that the BC’s objective is to pursue the inflation target. For 2022, the inflation target is 3.5%, with a tolerance interval of 1.5%. “We are not tied to a specific scenario. The goal is to pursue goal. Conceptually, under inflation targeting, there is no limit to the interest rate. We are being asked to deliver our mandate, we don’t have to be afraid to pursue it,” he said.

The BC director also stated that the estimates for the Broad Consumer Price Index (IPCA) presented in the Focus are better at predicting future inflation than the implicit rates. “Focus is better than break-even inflation for predicting future inflation. The detachment of implied inflation from the target is widespread in the world. It does not influence decisions,” he declared.

tax policy

The Central Bank’s Monetary Policy director also highlighted that the government’s fiscal policy has not hindered the conduct of monetary policy. According to him, from now on, inflation will begin to normalize.

“In addition to the global price shock, Brazil spent more money on the pandemic than other emerging countries. Going forward, inflation begins to normalize. On the side of aggregate demand, the fiscal has no longer hindered the conduct of monetary policy,” said Serra.

Dollar

The director of Monetary Policy at the Central Bank also stated that the scenario for the exchange rate in Brazil is currently “healthier”. However, he warned that the lockdowns in China and high interest rates in the United States affect the price of foreign currency in the country.

“The exchange rate scenario today is healthier, but lockdowns in China and US monetary policy picked up here. The dollar once again above R$5 seems to be more linked to China than to US interest rates”, Serra commented.

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