Monetary authority has said divergence does not mean signaling of monetary policy by committee as a whole
09/22/2022
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Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados
Dissenting votes in the Central Bank’s Monetary Policy Committee (Copom), such as the ones seen in Wednesday’s meeting, are bound to become more frequent from now on with the independence of the monetary authority, and should no longer be such a rare event.
Since 2016, under Alexandre Tombini, the Central Bank has not recorded dissenting votes. On Wednesday, directors Fernanda Guardado (International Affairs) and Renato Gomes (Organization) wanted to raise interest rates by 25 basis points, while the majority decided to maintain Brazil’s key interest rate Selic at 13.75% per year.
But this does not mean that, previously, there were no divergences among its members. They occurred especially in the most critical periods, as the beginning and the end of the monetary tightening cycle. But they were not expressed in the votes.
An important point: the Central Bank has said that divergence of views and votes does not mean signaling of monetary policy by the committee as a whole. They simply show that policymakers have different opinions. It is important to know these views in order to analyze if one argument or another gains strength in the committee.
In January 2021, for example, at least three members of the Copom defended, in the discussions that took place in that meeting, that the committee should immediately start a cycle of interest rate hikes – the key rate was then at 2% per year. The majority won, but in the following meeting, the interest rates went up, even more than expected by the market.
There was also divergence in the mid-2020s when the Copom discussed how far it could take the key rate down in response to the Coronavirus pandemic. Most directors argued that the room for interest rate cuts was more limited because an emerging economy could not live with interest rates as low as developed countries without increasing risks to financial stability. At least three Copom members thought that interest rates could be lowered further.
There may have been other critical moments of divergence in meetings that were not made explicit in the Copom statements. There were strong rumors in the market, for example, that policymakers diverged in late 2021, when the committee maintained the pace of monetary tightening at 150 basis points.
There are several possible explanations for the lack of divergence in the committee votes. It may be just that its composition has been more homogeneous. It could also be the style of the last presidents – Ilan Goldfajn and the current one, Roberto Campos Neto – in the search for consensus in the decision, despite divergences in the debates.
But it may also be a governance defect of our Central Bank, in which the president had more powers than the other members. Until the independence of the Central Bank, the president of the monetary authority was the one who indicated the other members of the collegiate board to the president of the Republic. So there was a certain hierarchy, with a president of the Central Bank who, at any time, could fire the directors.
The independence of the Central Bank changes this situation, because policymakers have fixed terms of office, regardless of the president of the Republic and the president of the monetary authority.
Today, the Central Bank’s board has greater cohesion because all members were chosen by the current president, Mr. Campos Neto. But in February 2023, the terms of two Copom members, including the monetary policy director, Bruno Serra, will end. In December 2023, two more terms will expire.
The new members will be nominated by the president of the Republic to be elected in October, and in theory may have a less homogeneous vision, when compared to the current team. This increases the chances not only of dissident votes but also of public remarks from members with different views.
This is an additional argument for not seeing dissenting votes as monetary policy hints. They are, in fact, an indication of the committee members’ leaning to one side or the other in the execution of monetary policy, as is the case in other central banks, such as the U.S. Federal Reserve.
*By Alex Ribeiro — São Paulo
Source: Valor International