Roberto Campos Neto said new bill will improve proposals already in Congress

06/01/2022

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Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados

Central Bank President Roberto Campos Neto highlighted the regulatory challenges regarding crypto-assets and said the monetary authority will regulate brokerages in the segment. “We like the bill [making its way] in the Chamber [of Deputies] and the Senate. We will have a third [bill] to improve it,” he said during a public hearing at the Chamber on Tuesday.

Mr. Campos Neto pointed out that “crypto-assets came with blockchain” and that he expects “great gain from this technology.”

The Central Bank is working on developing its own digital currency with encrypted technology, which will be able to combine functionalities similar to those of cryptocurrencies. The digital real project is in its initial testing phase. Before the new version of the Brazilian currency is issued, the monetary authority hopes to have formal authorization to use the new technology.

Regarding monetary policy, the president of the Central Bank stated that “raising interest rates is always bad” and “we end up having to restrain the economy and affect an important part of productivity,” but pondered that living with high inflation can generate a greater dose of monetary tightening later.

“Our job is always to do our best to bring inflation to the target, but with the minimum of destruction to the productive fabric of the economy,” he said. Mr. Campos Neto pointed out that the monetary authority can make two mistakes: go too high or too low. In the second case, according to him, inflation tends to get out of control, which then needs to be corrected. “The last two times this happened, Brazil had to go into recession to correct this,” he said.

Mr. Campos Neto also spoke about discussions regarding the possible change in the inflation target in Brazil but emphasized that the monetary authority’s mandate is to pursue the percentage defined by the National Monetary Council (CMN). “There is a provocation in the sense that inflation in the world is higher, so would it not be necessary to change the target [in the country]? It’s a CMN issue, the Central Bank is one vote of three, our mandate is to follow the target.”

According to him, the current regime brings credibility to the monetary policy. “The target is decided at the CMN. When we see next year’s target, Brazil is closer than other countries. One element of price formation is based on expectations,” he said. Earlier, Mr. Campos Neto had cited a “new literature” on the subject but refused to comment.

In his presentation, Mr. Campos reinforced that more volatile products, such as food and fuel, which are less sensitive to monetary policy, ended up contaminating other items within inflation, which led the Central Bank to respond more forcefully, raising interest rates more. “In the core [of inflation] we take out what is volatile, and when it is high, it means that the volatile items have contaminated extensively. Today the cores run at 10%, we see several chains with contamination.”

Mr. Campos Neto also pointed out that the food and commodities shock, worsened by the war between Russia and Ukraine, is positive for the country, which is an exporter of these products but creates a social problem. About economic activity, he said he expects the projections for this year’s GDP growth to be revised upwards.

Source: Valor International – https://valorinternational.globo.com