Campos Neto says it is “fallacy” to defend that inflation in Brazil today is not demand By Reuters

2023-05-13 04:40:36

© Reuters. Roberto Campos Neto, president of the Central Bank, in Brasilia 02/15/2023 REUTERS/Adriano Machado

SAO PAULO (Reuters) – The president of the Central Bank, Roberto Campos Neto, described as a “fallacy” the idea that Brazil does not currently have demand inflation, as some members of the government have been defending, including President Luiz Inácio Lula da Silva himself. Silva.

In an interview with CNN’s “Caminhos com Abilio Diniz” program, held last Tuesday and aired this Friday, Campos Neto said that several scientific articles show that inflation today is “much more of demand than supply”.

At the same time, Campos Neto stated that it is not true that, if inflation is on offer, the Central Bank should not change the interest rate. According to him, the institution also has to combat the secondary effects of supply inflation.

“If it contaminates the chain, then the BC has to come in and fight this scenario”, he said.

Campos Neto was also asked about the appointment of the current executive secretary of the Ministry of Finance, Gabriel Galípolo, to the BC’s Monetary Policy board. Right arm of the Minister of Finance, Fernando Haddad, Galípolo was chosen by Lula for the board, without Campos Neto having participated in the discussions.

“The rules of the game are these, there will be a director or more than one director who have different opinions”, minimized Campos Neto. “What we need to improve in Brazil is knowing how to live with the rules instead of changing the rules.”

Campos Neto also pointed out that the inflation target is not determined by the Central Bank, but by the National Monetary Council (CMN), which has a government majority. He recalled that, by law, the BC needs to reach the goal, even though the institution is trying to smooth the process as much as possible.

Campos Neto’s comments come in a context of government pressure for the BC to initiate the process of cutting the basic Selic rate, currently at 13.75% per annum. The BC, in turn, has defended in its communications that inflation expectations remain high.

At the beginning of the year, President Lula himself came to the opinion that the inflation target should be changed, which in theory would help to make room for cutting the Selic rate. Campos Neto, in turn, has always been against changing the goal.

“Since the first conversation I had, back there, with Haddad and Lula, before taking office, I said: ‘one of the things we shouldn’t talk about in public is the goal’”, said Campos Neto in this Friday’s interview. .

“What happens is that, as the Executive has the pen to change the target, when he speaks the market understands that the government is going to change the target… And when you talk about the target, you end up changing expectations.”

During the interview, Campos Neto also stated that he will leave the BC presidency at the end of 2024, as provided for in the institution’s autonomy law. He ruled out the possibility of being reappointed to the post. The president of BC said he was against the possibility of reappointment, despite the law allowing it.

Campos Neto also stated that, given the politicization of discussions around BCB monetary policy decisions, the autarchy has been concerned to explain in more detail its decision-making process on interest rates, particularly in the minutes of meetings of the Monetary Policy Committee ( Copom).

(By Fabrício de Castro)