Persistence is needed to reach targets, according to Roberto Campos Neto
11/15/2022
Roberto Campos Neto — Foto: Tânia Rego/Agência Brasil
Central Bank President Roberto Campos Neto said Tuesday that although much of the recent improvement in inflation is the result of government measures, “leading indicators show a qualitative improvement.”
“It is early to celebrate. We need to persist in fighting inflation. We need to persist in reaching the targets because this is the best way to contribute to sustainable growth,” he said at the Lide Brazil Conference, in New York.
Mr. Campos Neto stressed that “probably the external backdrop will help” Brazilian inflation, with global deceleration and monetary tightening.
The head of the monetary authority said that the Central Bank identified “relatively quickly” the persistent nature of inflation and was the first to raise interest rates.
“We have had better growth in recent years, especially in 2022. It is worth a warning that part of what was done in terms of interest rates will take effect in 2023. The global economy will slow down, so we expect growth in 2023 to be a little lower,” he said.
Mr. Campos Neto also stressed that Brazil can benefit from the new global reality. “We have a large labor market with a huge consumer market, and we are one of the few countries in the Americas with the capacity to produce renewable energy in large quantities,” he said.
“We should avoid an unbalanced tax increase and remember that overtaxing capital contributes to decreased productivity. It’s a problem we see globally,” he added.
Monetary authority’s autonomy law foresees fixed four-year terms for president and directors with one reappointment
08/19/2022
Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados
Central Bank President Roberto Campos Neto said he will not accept a new term after 2024. “When the autonomy rule was made, I was against reappointment. I wanted to remove it from the bill,” he said Thursday at an event held by BTG Pactual.
“I think that it is not healthy because it creates fragility in the middle of the term because there will be a Central Bank president interested in being reappointed who will be exposed at that moment to the will of the Executive branch. Other countries go through this, and I don’t like it, I don’t think it is good. So the answer to the question is I do not [want it].”
The Central Bank’s autonomy law provides for fixed four-year terms for the president and directors, with one reappointment. Thus, Mr. Campos Neto must hold the post until the end of 2024 and could have the term extended until 2028.
In the event, Mr. Campos Neto made it clear that the change in the monetary authority’s focus on inflation over the relevant horizon will not be permanent. According to him, when uncertainty decreases, the policymakers will go back to considering the full-year index.
In its last decision, the Central Bank’s Monetary Policy Committee (Copom) emphasized the 12-month inflation in the first quarter of 2024, projected at 3.5%, and not the full-year index. According to the statement, the period “reflects the relevant horizon, smoothens out the primary effects from tax changes, but incorporates their second-round effects on the relevant inflation projections for monetary policy decisions.”
Mr. Campos Neto stressed that calibrating the Copom’s statements is the main challenge in an uncertain environment. “We have different estimates [in the market] about how much [of the government’s tax cut] was going into the following year. In the time dimension, everyone was sure it would come back in the first quarter [of 2024]. We found it easier to act on the when,” he said.
The central banker highlighted, however, that this is a one-off change and does not mean a change in the “inflation target.” “We made it clear that we are talking about the relevant horizon and not the target. We had to adapt our reaction function. It is not permanent, it is temporary,” he said.
Mr. Campos Neto also said that Brazil is the only country where the market is pricing a drop in interest rates. “It means that agents understand that much of the [monetary policy] work has been done.”
The executive highlighted that inflation is still quite pressured in Brazil, but that the regulated price index shows the impact of the government’s measures, which reduces prices in the short term. “Food at home is still high and so are services,” he said.
In his view, the tax cuts this year should generate inertia for the coming years, but it is necessary to “understand what is structural.” “We are starting to see better news [on inflation], as in the diffusion part. We think that there is inertia for next year, but there is uncertainty,” he said.
As for the economic activity, he emphasized that the market has revised upwards the projection for this year due to the government’s expansionary policy, but also due to the better-than-expected performance of some sectors. “Our projection is a little above 2%, it should come out soon,” he said. In the most recent quarterly inflation report, the Central Bank estimated a growth of 1.7%, and this figure will be revised in the September document.
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