Adjusting expectations, criticism, and the fall of DS: the consequences of Campos Neto’s speeches to Cobom
5 min read
Germano Lauder / Infomoney
Correction: Contrary to what was stated in the headline as of 10:00 PM, today was a drop in future interest rates.
São Paulo – Central Bank President Roberto Campos Neto surprised the market this Tuesday (14) when he said the key interest rate, Selic, would be used to fight inflation, but with reservations.
“We’ll take Selic wherever we need her, but We will not always react to high frequency datasaid President. The latest statement before the upcoming Monetary Policy Committee (Copom) meeting, caused a divergence among analysts, decrease in future interest And review expectations for the monetary tightening cycle.
According to Joao Beck, Economist and Partner at BRA, the market interpreted what Campos Neto said as an indication that at the Coboom meeting on September 20-21, the rate hike will be of the same size as in the previous meeting. , any percentage point.
“The ‘high frequency data’ referred to by the President of British Columbia is [Índice Nacional de Preços ao Consumidor Amplo] IPCA for August, which came in well above expectations. Thus, Campos Neto is sending a message that he will not put too much weight on this indicator.”
In the wave of revisions, Quantitas, for example, slashed from 1.25 percentage points to 1 percentage point its forecast for a Selic rate increase in September. “BC is clearly not ready to accelerate, so we’re back to the one-point projection,” explains Quantitas chief economist Ivo Chermont, who raised the forecast to 1.25 points after the IPCA in August. “I think you’re more likely to maintain that one-point pace now.”
For Chermont, BC’s strategy of keeping the upward pace at one point per meeting suggests greater risks given inflation expectations, but will not necessarily lead to a decoupling.
“I think it was cheap for them to accelerate, to show themselves more aggressive, because the curve was already at 1.25 points. But it’s a BC strategy, and they have a different scenario for inflation and growth,” he says.
Quantitas now expects four consecutive Cilic increases of one point during January, followed by a final adjustment of 0.75 point. As a result, the prime rate will reach 10.0% in the first quarter of 2022.
Banco BV’s chief economist, Roberto Padovani, in addition to reviewing his forecast, Swipe the Campos Neto signal. “We were concerned because we thought the BC decision was made at a closed event. This is dangerous and makes important communication noises,” says Padovani.
“We are reassessing expectations for a 1.25 percentage point increase in Selic in September. There was significant information in a closed event, and this makes it very difficult to predict Copom’s next decision.”
In the same vein, the founding partner of the management company Capitalo, Carlos Leonard Welles, was another partner who criticized Campos Neto’s statements. For him, the speech was “cold water bath” and can be “shot in the foot”.
Woelz points out that so far, BC has pursued monetary policy to try to contain inflationary expectations by providing short-term responses. “BC has been wrong in the past for being too tiered,” he said at the Eleven event. Wells said the inflation scenario has deteriorated significantly in recent months. “He risks losing control of expectations a little bit and the market is chasing after them.”
The way the central bank is changing its tone shows that the institution “wants to err bearish”, causing interest rates to rise more slowly. The director said that if BC expands the horizon of monetary policy, it will be terrible, because it is not known now nor who will be the next president of Brazil. “The market may interpret this as a way for you to escape the responsibility of fighting inflation next year.”
“It was a big kick in the foot,” Woelz said, noting that BC is showing little desire to raise interest rates faster to where the base rate should be. “It looks like a central bank that if it’s going to make mistakes, it’s going to make mistakes down, but not up.”
The manager said he will wait for Cobom’s next meeting to see if there is more information about the new strategy or if it isn’t a communication error by Campos Neto, which breaks the strategy made so far toward a more gradual. “I haven’t grasped it yet.”
Ativa Investimentos in turn believes in a 1.25 percentage point increase in Selic’s rate in September, even with reference to BC.
For Ativa’s chief economist, Ettore Sanchez, the Campos Neto statement was intended to contain the damage of extended pricing in short interest rates. But we cannot lose sight of the progression of inflation forecasts for 2022. They have been virtually insensitive to British Columbia’s austerity. It’s not just another flip or surprise. These are common factors that lead to an acceleration of monetary policy tightening,” says Sanchez, who expects Selic to reach 8.50% at the end of the cycle.
MB Associados also expects a 1.25 percentage point increase in Selic’s rate in September, despite Campos Neto’s speech. With inflation at 10% and with all the risks ahead, pointing out that this scenario is complicated. I do not think that the BC models will indicate a calm inflation scenario. The president says so now, but it won’t necessarily happen,” analyzes MB’s chief economist, Sergio Val.
For the economist, signs of slowing rate hikes could make it difficult to control the IPCA’s forecast for 2022, as well as delay an acceleration in growth. “A one-point increase is possible, but it shouldn’t be. The assessment of the situation has become unanimous, everyone is reviewing the exchange rate, inflation and upward exchange. BC sets a softer tone than it should be,” says Vale.
Even before Campos Neto’s speeches, XP, Citi and Itaú revised expectations for Selic’s level at the end of the rate-tightening cycle.
XP Chief Economist Cayo Miguel highlights that Selic should be raised to 8.5% annually to combat the most widespread progression of inflation recorded in the last IPCA.
On the other hand, Citi understands that BC will raise the interest rate to 8.75% at the end of this year.
Finally, Itaú believes in three more consecutive increases of 1 percentage point and the last of 0.75 percentage points, bringing Selic up to 9% annually in 2022.
(with government agency)
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