Next week de Copam Will hold its first meeting after approval of formal autonomy of Central bank, Which sets the mandate for the directors of the institution, which makes the monetary authority vulnerable to executive intervention. The outcome of this meeting will be very important for the future of monetary policy, as there are factors that justify the maintenance of the basic interest rate, as well as factors that justify the beginning of the normalization of monetary policy, in which there is an increase. Rate of interest.
In the first case, in addition to high levels of laziness and high unemployment rates, activity indicators show a slowdown in early 2021, mainly due to the worsening of the epidemic, urban peace and the introduction of measures to prevent lockdown. Different cities and states, such as Belo Horizonte, Rio de Janeiro I Sao Paulo.
Likewise, not only is the unemployment rate still quite high, but a strong growth in employment in the second half of 2020, as well as a slowdown in activity, may reduce the pace of job creation in the first quarter of 2021. In other words, there is no indication that the Brazilian economy is close to accelerating inflation due to excess demand, which would justify maintenance Selik At current levels.
On the other hand, there are important factors that indicate the need to normalize monetary policy and start the process of raising the celik rate. First, a sharp rise in commodity prices in general, including oil. Historically, as Brazil Is a major exporter of commodities, increasing its prices to produce an improvement in the country’s terms of trade and, consequently, appreciation of the exchange rate, which would have offset the effects of the rise in commodity prices on inflation is. However, the low interest rate differential between Brazil and developed and emerging countries, due to high fiscal risk by investors, has been under real heavy pressure since the onset of the epidemic in March 2020. Interference with the President’s Republic Petrobras And the decision of the minister Edson Fachin To revoke the sentence of all former presidents Lula On Operation Car Wash This scenario of uncertainties further aggravated, leading to devaluation of the exchange rate. The question among investors is whether the intervention in Petrobras is punctual or if it signals a more structural change in economic policy towards a more populist strategy, a suspicion exacerbated by former President Lula’s return to the political-electoral landscape.
Expectations for, with increased fiscal uncertainty and strong devaluation of real Inflation They are already above the target in 2021 and begin to affect expectations for 2022, indicating lower inflation expectations and a loss of credibility by the Monetary Authority.
Approves $ 1.9 trillion fiscal stimulus package The us And the success of the vaccination program, which has generated an acceleration of the US economy, raised expectations of inflation in the country over the long term with an increase in interest rates on US Treasury bonds, which put pressure on the exchange rates of emerging countries, including Brazil. .
Development of expectations for inflation and risk of loss of credibility are two basic factors. Maintaining the basic interest rate in the context of risk of lowering expectations will generate an impression among investors that the decision was influenced by political intervention, at a time when the monetary authority has gained operational autonomy.
In this context, despite high unemployment and laziness, the correct decision in our evaluation is to increase the salic rate by 0.5 percent at its next meeting.
* PUC / RIO decision progress and general investment rules