Central Bank’s monetary policy director highlighted, on the other hand, the importance of following the economic data until the next policy meeting
08/16/2023
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Gabriel Galípolo — Foto: Divulgação/BC
In his first public comments since taking office, the Central Bank’s monetary policy director, Gabriel Galípolo, avoided sending any signal regarding the next meeting of the Central Bank’s Monetary Policy Committee (Copom), to be held in September.
On the other hand, he emphasized the conditional nature of signaling on interest rates, that is, the importance of monitoring economic data until the next policy meeting.
“It is normal that there are these speculations and this kind of attempt to know if some director sends any additional message about what is written in the Copom minutes,” said Mr. Galípolo, in a videoconference of the Federal Council of Economy. “But I think the Copom minutes have been very fortunate in reflecting what the sentiment of the board really is.”
Two weeks ago, the Copom cut Brazil’s key interest rate by 50 basis points to 13.25% per year, with a narrow vote. But it was unanimous in indicating for the next meetings that it considers “a further intensification of the pace of adjustment as unlikely, since this would require significant positive surprises in the inflation dynamics.”
Mr. Galípolo recalled that “there is still plenty of time for the next Copom meeting.” “As stated in the minutes, we will continue to analyze the evolution of expectations, the anchoring of inflation, the international scenario, and price adjustments.”
In the minutes, the Copom imposed high requirements to cut more than signaled. It would require “a significant change in the fundamentals of inflation dynamics, such as a much more solid reanchoring of expectations, a sharp opening of the output gap, or a much more benign than expected dynamics of services inflation.”
In his presentation, the Central Bank director spoke about how ambiguously private-sector analysts are reading the recent changes in the international scenario, with the slowdown in China and the rise in U.S. Treasuries.
On the one hand, he said, this environment could lead to a rise in the foreign exchange dollar, with possible inflationary effects. On the other hand, it could increase the slack of the world economy, creating a global inflationary force that would help Brazil.
Mr. Galípolo’s emphasis on the international scenario is noteworthy because the Copom itself highlights this factor as a possible downward factor in the balance of risks for inflation.
The Copom minutes include in its balance of risks the possibility of “a sharper-than-expected slowdown in global economic activity, particularly due to adverse conditions in the global financial system.”
It will be necessary to follow Mr. Galípolo’s comments in the coming weeks to see to what extent he believes that this global disinflationary risk could, over time, be incorporated into the baseline inflation projection scenario.
In this first public statement after becoming a Central Bank director, Mr. Galípolo continued to wear the hat of government official. He advocated the decisions taken by the economic team in the fiscal area and in maintaining the inflation target and its impact on the future yield curve.
The market is paying close attention to the extent to which Mr. Galípolo distances himself from his former roles at the Ministry of Finance, where he was executive secretary, to see if monetary policy will continue to be conducted autonomously with a view to fighting inflation, without giving in to the objectives of solving short-term fiscal imbalances.
More than adopting a pro-government discourse, however, Mr. Galípolo was very diplomatic, with praise for the Lula administration, Congress, and the Judiciary branch. He spoke well of the Copom’s decision-making process, of the Central Bank’s technical staff, and of the committee members who took a different position from his, on the conservative side. He said, for example, that the director of economic policy, Diogo Guillen, is an “expert.”
In a second event, in the early afternoon, held by news outlet Brazil Journal, he tried to give a more pragmatic and realistic view of the decision-making process on interest rates, noting that the difference between the positions at the last Copom meeting was small and that there was a very large convergence.
“There are some proposals for solving problems that only survive at a safe distance from the problem,” Mr. Galípolo said, explaining that the principle applies to the Copom. “As you get closer to the problem, if you have people with common sense at the table, the range of possibilities and alternatives that exist decreases significantly.”
The Copom has been criticized by members of the government, including President Luiz Inácio Lula da Silva, for delaying the start of the cycle of interest rate cuts.
*Por Alex Ribeiro — São Paulo
Source: Valor International