We are going to consider a doable last adjustment in September, says Campos Neto

Central Bank President also spoke about inflation and said that Brazilian GDP is “in a process of upward revision”

The president of the Central Bank, Roberto Campos Neto, recently signaled that the decision of the Monetary Policy Committee (Copom) this month is open and that the collegiate will assess “a possible final adjustment” of the Selic rate, currently at 13.75%. Yesterday, 5th, the Focus Bulletin showed maintenance of financial market expectations at 13.75% at the end of this year and an increase in expectations at the end of 2023 to 11.25%.

“We understand that you have to send a hard message. Today’s message is the same as the last Copom. We took advantage of events like this to express ourselves and the message that is still valid today is that of the last Copom, which we said we would evaluate a possible final adjustment”, he said, at the event “Prêmio Valor 1000”, promoted by Valor Econômico newspaperin Sao Paulo.

“We will evaluate a possible final adjustment in September”, reinforced at another time when asked if there is still the possibility of a 0.25 percentage point increase in the Selic rate this month. In the August Copom, the BC said it would assess “the need for a minor, residual adjustment at its next meeting.”

Inflation

The BC president stated that “12-month inflation has peaked in Brazil and is starting to improve”. Despite this, he said that this process still inspires care.

As in his last presentation, Campos Neto said that the inflation battle is not won and that “it is not to be celebrated”, despite the recent improvement in the IPCA – the official index of inflation – and expectations for 2022.

The BC president once again highlighted that the main reason for improvement in the short term is the government’s tax relief measures, but mentioned that there are more favorable news in “other indices” at the margin. Campos Neto also evaluated that there is a repricing of inertia for 2023, which is lower with the falling expectations for this year.

According to him, communication is very important to finish the work of the monetary tightening cycle and the BC will communicate step by step what it intends to do, but, in moments of greater uncertainty, it tends to talk less. He recalled that there is a lot of uncertainty about the return of the collection of federal taxes on fuel in 2023, as well as about the financing of Auxílio Brasil.

Campos Neto also said that much of the process of raising interest rates has not yet taken effect. “We understand that at some point it stops and waits for the effect. But we understand that we have a goal and we want to make the convergence towards the goal”, he stressed. He also highlighted that, with the history of indexation in Brazil, the BC always tries to navigate avoiding “underdoing” in interest rates.

International

Campos Neto said that the Covid-19 pandemic and the war in Ukraine brought sharp inflation to the entire world. According to him, the greater demand for products, which increased the price of energy, created structural inflation.

“We see what happens with inflation in advanced countries. Remembering that 12-month inflation in the UK is above 20%. Something never seen before. People in Europe are having a hard time dealing with such high inflation. And remembering that today Russia accentuated the problem with the interruption of gas supplies, ”she said.

According to Campos Neto, the global crisis provoked an unprecedented event, in which the relationship between price and investment increase broke down.

“This is one of the few times when the relationship between price and how much you invest has broken down. Basically, we had an increase in the demand for goods, which increased the demand for energy. We created a structural energy inflation. This was already happening before the Ukraine crisis,” she said.

The BC president also said that the market prices a continued drop in inflation, while he divides this process into two stages, with an initial reduction in energy and food prices.

“We look at the end, headline inflation is high and cores are rising a lot in the world. Inflation started with energy, food and a little bit of services. And now it starts to contaminate the whole chain. That’s why I say that the world has difficulty in fighting inflation. The markets almost price that the drop in inflation will be continuous and I understand it won’t,” she said.

According to Campos Neto, the adjustment in energy and food prices will lead to inflation in some developed countries falling from 9% to 5%. “But I believe there will be another fight to bring inflation down from 5% to 3% and 2%,” he said.

GDP

“We are in a process of upward revisions. Let’s see a process of upward revision of Brazil’s GDP for 2022. The employment part is the big highlight and surprise. We are going for a rate close to 8.5%. This has been a surprise. The employed population has been a major highlight,” she said.

According to Campos Neto, the fiscal data show a better-than-expected public accounts situation, despite understanding that there are significant challenges to finance social programs in the coming year.

“There is a favorable macroeconomic scenario for this year. GDP and employment are up, fiscal is better and inflation is coming down,” he said.

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