2023-08-03 00:45:51
The Central Bank of Brazil (BCB) finally gave in on Wednesday to pressure from the Lula da Silva government and reduced the country’s basic interest rate by 0.50 percentage points, to 13.25% per year, the first rate cut in nearly three yearssince September 2020, and the beginning of a “flexibility” cycle.
After a year without variations, the Monetary Policy Committee (Copom) of the entity evaluated that “the improvement of the inflationary picture” up to 3.1% generated the “necessary confidence to start a gradual cycle of monetary easing”, as reported by the BCB in a statement at the end of a new meeting.
Lula’s government has been insisting since it took office in January on the need for a rate cut to make credit cheaper, to encourage consumption and investment. And it marked the contrast of low inflation (3.1%) against extremely high rates, which stunted growth.
Hours before the Central reported its ruling, the president had returned to attack the president of the Centralthe economist Roberto Campos Neto, whom he repudiates for not having reduced interest rates earlier.
During an interview with foreign correspondents, he said that “sincerely” he does not know who Campos Neto “is serving.”
“This guy from the Central Bank (for the president), I don’t know what he understands, but it seems to me that he doesn’t understand Brazil and he doesn’t understand the people. So there’s a logic, I don’t know who it’s serving, I don’t know, honestly I don’t know. It is not for the interests of Brazil”, declared Lula before knowing the rate cut.
A market in Rio de Janeiro. Inflation began to subside in Brazil. Photo: REUTERS
“I am waiting (for the rate to drop), rather than waiting. I should have taken (this measure) three meetings ago because there is no explanation,” she said.
Lula defended that Brazil “will continue to grow” even with interest rates higher than those expected by the government. “Brazil today has inflation that has gone down and interest rates have gone up.” She then criticized the policy of the monetary entity once again, pointing out that the country “has the highest real interest rate in the world without any explanation.”
Lula also stressed that Campos Neto can only leave the presidency of the Bank when his term ends in 2024 or when the Senate dismisses him. The entity is protected by a law that establishes its independence. “We will continue to grow anyway. This will be the pleasant surprise. That’s why I’m calm, ”he added.
Government optimism
The International Monetary Fund (IMF), which supports the government’s economic policy, also defends the Central Bank’s caution with interest rates. The board concluded the review of the country’s economy, known as Chapter IV, a few days after the IMF forecast Brazil’s GDP growth of 2.1% for this yearthanks mainly to a solid agricultural production in the first quarter of 2023.
The President of Brazil, Lula da Silva, and his Minister of Economy, Fernando Haddad. Photo: REUTERS
“Headline inflation has fallen rapidly from last year’s peak” and will stand at 5.4% at the end of 2023, but the “core (without food and energy prices) remains high,” warns the Fund. That is why it considers the position of the Central Bank of Campos Neto as “adequate” and calls for “a continuous monetary policy with a vision of the future and that depends on data.”
He also insisted on the importance of “a flexible exchange rate regime and adequate foreign exchange reserves” as buffers for the future.
Another positive fact is that The trade surplus of the South American giant jumped 68.7% in July against the same month of 2022, favored by the sharp drop in imports.
While exports fell 2.6% in the year-on-year comparison, to 29,062.4 million dollars in July, imports plummeted 18.2%, to 20,027.1 million dollars, according to data released by the Ministry Development, Industry and Trade.
The surplus accumulated by Brazil in the first seven months of the year reached a record of 54.1 billion dollars, a value 36.6% higher than that registered between January and July 2022.
In the first seven months of the year, exports advanced a slight 0.4%, to 194,742.3 million dollars, while imports fell by 8.9%, to 140,642.3 million dollars.
The government foresees a surplus of 84.700 million dollars for this year, which would mean an interannual increase of 37.7%. The rise in exports since January was driven by agriculture, whose sales rose 6.1% to $49.9 billion.
Source: agencies
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