Brasilia – President Central Bank, Gabriel GallipoloHe stated today, Thursday, 27th of this month, that the scenario is moving in the direction that the monetary authority wants, but perhaps not at the speed it wants.
“The new data continues to point in the direction that we have commented that monetary policy is indeed working, but it is working very slowly, in an economy that has shown resilience in the face of the level of constraints we have placed on monetary policy,” he said at an event promoted by Itaú Asset Management.
The Central Bank Governor stressed that the current strategy is to collect data and gain confidence in this process, without getting emotional about specific data.
“It’s a process that we’ll follow and it’s data-driven. When we say we’re not giving any indication going forward, it’s not because we’re trying to hide something, it’s because I really think the outreach intelligence we’ve done throughout this year has been mediocre. We want to show what we actually see, with the limitations that we have, while acknowledging the complexity that exists.”
credibility
The head of the Central Bank also explained that the authority’s credibility is not the result of the work of one person, but rather a collective building. He said, “I think that this issue of credibility and your building of the institution’s credibility is not my problem. It is the institution’s issue. It is never a personal result or a person. It is a process of collective building over time.”
The Central Bank Governor considered that it is not easy at all to be responsible for the monetary authority in Brazil, but he cannot complain. “I benefit a lot from the work that has been built up over time at the organization and from the organization’s technicians. They are well-trained technicians who know what to do.”
Macroeconomic variables
Galipolo also stated that the municipality, in addition to the surprise in the numbers, noticed surprises in the correlation between macroeconomic variables in Brazil.
“If we ask most people, especially those who are not from Brazil, with a nominal interest rate of 15%, with a real interest rate of 9% to 10%, you would not imagine that unemployment would continue to fall as it did and that we would reach the lowest level,” he said.
Galipolo believes that this “noise” in macroeconomic relations responds more to the structural situation than to the cyclical situation.
“It is not new that Brazil has relatively higher interest rates compared to its peers, I think the central bank has made clear and will continue to make clear that the fact that you have a structural condition requires you to give a larger dose of the drug for it to take effect.”
Despite this behavior of some variables, Gallipolo said that from British Columbia’s perspective, the inflation path is in line with what the municipality envisioned in its “flight plan.”
The central bank governor also stated that the data continues to show a slow and gradual deceleration in the Brazilian economy. “Of course, we would like the inflation convergence to be faster, but on the other hand, it also removes the other risk of causing a very sudden slowdown in the economy,” he added.
The authority reiterated once again that the task of the central bank is to achieve inflation convergence, and to achieve this it must set the Silica interest rate at the necessary level, for as long as this is necessary.
He also noted that despite the growth recorded by the economy, productivity gains are less pronounced than would be desirable “to feel confident that we are not just producing growth.”
Unproven financial scenario and forecasts
The head of the central bank assessed that for some time now, the perception of fiscal stimulus has been present in unsettled expectations. For the central bank governor, this issue may explain part of the problem gap Existing between market expectations and BC.
Galipolo considered that in recent years, measures that were presented as neutral from the point of view of the budget and the primary result were, in fact, not necessarily neutral from the point of view of the impact on demand. “If you tax more and distribute income to people who have a greater propensity to consume, that starts to have a different effect, which is not neutral, for stimulus purposes,” he said.
elections
The central bank chief also said that election years may involve greater volatility, depending on election polls and issues that may affect the outlook. However, he stressed that BC is not making a value judgment about what it thinks will be done after the election.
“BC follows this logic that it’s not making a value judgment about what it thinks will be done after the election, but rather how that effectively impacts our mandate, how it impacts demand and current inflation and expectations,” he added.
Galipolo stated the importance of a sustained inflation target precisely in times like these. “It’s important because it formalizes what BC is working on, which is: It’s really looking at a horizon that extends through the election year, and of course any new factor,” he said.
The central bank governor then stressed that the central bank remains vigilant and will always make any necessary adjustments. “British Columbia will never be shy about making any necessary adjustments depending on events that may occur.”
credit
Galipolo also said that the Brazilian credit market continues to grow in a “very surprising way”, given the level of the Selec interest rate, at 15% per year. According to him, this requires “vigilance and conservatism” in managing monetary policy.
The President of the Central Bank commented, saying: “We are still continuing with this channel, which is the channel par excellence for transmitting monetary policy, and it still provides appropriate momentum and growth and requires this vigilance from the Central Bank.”
Real estate financing
The head of the central bank said that the new real estate financing model, which was launched by the government in October, is aimed at increasing the strength of monetary policy. He referred to this measure as one of the measures aimed at reducing subsidies and distortions that hinder the interest transmission channel, and lead to the country having interest rates that are consistently higher than its counterparts.
“The intention was to take something that had already been designed since Bruno was there, how can we use savings more to facilitate the transition to financing that will be more appropriate, so that financing is more aligned with assets, and at rates that gradually approach market rates, which tends to increase the strength of monetary policy,” the central bank governor said.
In his speech, Galipolo was referring to Bruno Serra, British Columbia’s former director of monetary policy and current director of Itaú Asset, the interviewer.
Since the beginning of his administration, at the beginning of this year, Galipolo has been repeating that the “normalization” of monetary policy constitutes one of the core agendas of the B.C. On Thursday, he reiterated that this process will require a series of reforms, not all of which are within the jurisdiction of the monetary authority. The mayor said this is one of the agendas he would like to advance during the next three years of his term.
The central bank governor also referred to the increase in collateral as a measure to “normalize” monetary policy, with the aim of lowering interest rates on personal credit. Since the rates of these modalities are usually multiples of Selec, variations in the base rate have limited effect. He noted that Drex should serve as a platform to provide liquidity to assets and enable their use as collateral, and not as a central bank digital currency (CBDC).