2023-08-15 21:37:43
She made the statement when questioned about the level of interest rates in Brazil. “Comparing interest rates between countries is a bit complex.
The director of International Affairs at the Central Bank, Fernanda Guardado, said this Tuesday, the 15th, that Brazil is going through a disinflation process, which allowed the Monetary Policy Committee (Copom) to begin a process of loosening monetary policy. “We are seeing that the work of BC, which began in 2021, is bearing fruit and we will persevere until we have enough consistency in this path of disinflation”, he said during the event “Sob o Olhar Delas”, organized by XP, in Brasilia.
She made the statement when questioned about the level of interest rates in Brazil. “Comparing interest rates between countries is a bit complex. If we compare it to Argentina, it’s super low,” she said, noting that the level of the rate depends a lot on the structural and circumstantial issues of each economy.
Guardado recalled that, since 2021, most of the world’s central banks have had to embark on a monetary tightening cycle that has been quite persistent. The director pointed out that comparing Brazil with advanced countries is very complicated because they are economies in very different stages.
“Brazil is an emerging country, so it’s better to look at Chile, Colombia, Mexico. These are countries that have neutral interest rates lower than Brazil’s. Around here, rates are in double digits too, especially in Colombia. Despite having a neutral interest rate lower than ours, it has higher rates than Brazil’s because they had to control the inflationary process”, he justified. “The tightness gradation for them is higher than what we are doing in here.”
drop in the Selic rate
Guardado stated that the Monetary Policy Committee is very committed to the pace (of a drop of 0.50 pp) in the Selic and that, for this reason, he has already advanced that he would apply another cut of the same magnitude at the next meeting. “I think it might not be good practice to commit inexorably, because we don’t know the type of shock that can happen in the economy”, he pondered during the event “Sob o Olhar Delas”, organized by XP Inc., in Brasília.
Guardado made a point of pointing out that, since 2020, “it has been a shock beyond a shock”, but that the Copom is very determined to make it clear that there would need to be surprises in three very large areas for there to be some kind of reassessment.
“There could be questioning, so we anticipated that kind of questioning. These are quite difficult conditions, even to resolve doubts that could arise. It is a very high bar and we just wanted to make it clear how high this bar is”, he stressed when quoting again the adjective used by the board in the Copom minutes.
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Degree of discouragement of inflation expectations still uncomfortable
The director of International Affairs at the Central Bank said that there was a firmer re-anchoring of expectations for inflation after the decision of the National Monetary Council (CMN) to stipulate the target of 3% in June, but it was only partial. “We still have a degree of discouragement that is uncomfortable”, she said during the event “Sob o Olhar Delas”, organized by XP Inc., in Brasília.
Guardado made this point after being questioned about the use of adjectives in official BC communication documents. “Adjectives in the BC minutes are in the document because they bring a message about the size of the surprise that we would need to observe in these vectors to justify a change in relation to a strategy that we are foreseeing at the moment”, he justified.
She herself asked what would be a substantial surprise in service inflation, giving one of the examples and explaining that it is not a 5 base point deviation to one side or the other. “It is a surprise that it could push the path of our expectations for services inflation substantially downwards over our relevant horizon. It’s not a single month’s data,” she added.
The director commented that the disinflation process is natural and that, therefore, there will be good and bad months and negative and positive surprises. “We have to keep looking at the trend. We have been behaving like this for a long time and we will continue like this in our modus operandi: trying to understand what is happening in the inertial part of inflation and see how this will affect our projections and the path we are projecting forward”, she quoted .
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Guardado also commented on the use of the expression “blunt opening of hiatus”. “It’s not this or that. It is the set of variables, which are interconnected. This would likely lead to a downward revision of our inflation forecasts. It’s not that one is going to happen independently of the other.”
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