Galipolo invents difficulties to justify stratospheric interest rates
Written by Jefferson Meola, on his blog
With every sterling performance of the Brazilian economy, Central Bank President Gabriel Galipolo invents a new – and inexplicable – difficulty to justify maintaining expensive interest rates “for a very long time.”
Galipolo takes turns using a range of pretexts to justify the continuation of Bolsonarista Roberto Campos Neto’s monetary policy, which Lula’s government previously viewed as sabotage of the country, and is characterized by Nobel Prize in Economics Joseph Stiglitz for his “death penalty” decree for the Brazilian economy.
After months of anxiety To nausea The financial risks assumed in Brazil in order to keep the SELIC interest rate index high, or the so-called “deconstruction of inflation expectations,” have gained emphasis as “a common nuisance among all COBOOM members.”
But in October, when inflation was very close to the target, above the upper band by just 0.18%, Galipolo got creative, saying that “the target is not the upper band.”
To justify keeping interest rates at a ridiculous level of 15%, the head of the central bank stated that “the legal decision I received was the 3% target. The instrument I was given was the interest rate. The central bank’s obligation is to use the interest rate to chase the inflation target.”
Gallipolo knows that this 3% target is unrealistic and that it was a mistake on the part of the current government to maintain it at this level, given that during the 26 years of the target regime, the country’s annual inflation averaged 6.3%.
Given this reality, it would be more intellectually and technically honest if the coboom itself proposed to the National Monetary Board that the inflation target be adjusted to a realistic level, at least 4% per annum, as advocated by Professor Luiz Gonzaga Belloso and other renowned economists in the “Open Letter to the National Monetary Board” (10/15/2024).
The authors of that letter recognize that “the 3% target has proven to be dysfunctional,” an outcome consistent with financial market perception.
Viewmondo support
According to A central bank poll published on November 28 by the central bank itself on inflation expectationsThe market expects interest rates of 4.43% in 2025 and 4.17% in 2026 – always above the midpoint of the 3% target that Galipolo says was the “legal decision” he received from Lula and Haddad.
Despite this retrospective national inflation, Gallipolo works as a spider researcherWhich reaches ridiculous conclusions about the observed phenomenon to justify harmful monetary policy that harms economic growth.
Now, announcing an unemployment level of 5.8 per cent, the lowest in the historical streak that began in 2012, Galipolo declared that the hot economy, even with inflation under control, is encouraging British Columbians to keep interest rates high – and for a “very long” period of time.
Increasing public debt relative to GDP should be the next difficulty invented by the central bank to justify interest rates at this level, “which is unjustified,” according to Minister Fernando Haddad.
The ironic detail is that the increase in debt is due to the increase in interest, which rose from 12.25% with Campos Neto to the current 15% with Galipolo, which represents Government fiscal expenditures increase by R$149 billion annuallyWith negative repercussions also on the fiscal balance and financing of social spending and public investments.
Read also
Paolo Kleas: Trillion-dollar fiscal austerity
Jefferson Meola: With interest rates of 15%, the Gallipolo administration increased government fiscal expenditures by 149 billion
Paolo Kleas: Interest and more and more attention
Paolo Kleas: Interest on a trillion
Paulo Nogueira Batista Junior: Brazil, Champion of Usury and Inequality – Central Bank Cartoon