Adjustment of projections, criticism and the fall of DIs: the consequences of Campos Neto’s speeches before the Copom

Roberto Campos Neto, President of the Central Bank

Germano Lüders/InfoMoney

Correction: contrary to what was stated in the title until 10:00 pm, the day was a drop in future interest rates.

SAO PAULO – The president of the Central Bank, Roberto Campos Neto, surprised the market this Tuesday (14) when he stated that the basic interest rate, Selic, would be used to fight inflation, but with reservations.

“We’ll take Selic wherever we need it, but we won’t always react to high frequency data,” said the chairman. The statement, last before the next meeting of the Monetary Policy Committee (Copom), caused divergence among analysts, a drop in future interest rates and a revision of expectations for the monetary tightening cycle.

According to João Beck, an economist and partner at BRA, the market interpreted what Campos Neto said as a sign that at the Copom meeting held on September 20 and 21, the interest rate will be raised by the same magnitude as in the previous one. , that is, a percentage point.

“The ‘high frequency data’ that the BC president referred to was the [Índice Nacional de Preços ao Consumidor Amplo] August’s IPCA, which came in well above expectations. Thus, Campos Neto sends the message that he will not put as much weight on this indicator.”

In the wave of revisions, Quantitas, for example, reduced from 1.25 percentage points to 1 percentage point its projection of an increase in the Selic rate in September. “The BC is obviously not willing to accelerate the pace, so we went back to the 1-point projection,” explains Quantitas chief economist, Ivo Chermont, who had raised the projection to 1.25 points after the IPCA in August . “I think it’s more likely to keep that 1-point pace now.”

For Chermont, the BC’s strategy of keeping the pace up at 1 point per meeting implies a greater risk looking at inflation expectations, but it will not necessarily result in de-anchoring.

“I think it was cheap for them to accelerate, to show themselves more aggressive, since the curve was already there at 1.25 points. But it is the BC’s strategy, and they have a different scenario of inflation and growth”, he says.

Quantitas now expects four consecutive 1-point Selic increases through January, followed by a latest adjustment of 0.75 point. As a result, the base interest rate would reach 10.0% in the first quarter of 2022.

The chief economist of Banco BV, Roberto Padovani, in addition to revising his projections, criticized Campos Neto’s signal. “We were worried because we think the BC’s decision was brought forward in a closed event. This is serious and introduces important noise into communication,” says Padovani.

“We are reevaluating the projection of a 1.25 percentage point hike for the Selic in September. There was important information at a closed event, and that makes it very difficult to predict the next Copom decision.”

In the same vein, the founding partner of the management company Kapitalo, Carlos Leonhard Woelz, was another one who criticized Campos Neto’s statements. For him, the speech was a “cold water bath” and could be “a shot in the foot”.

So far, Woelz points out, the BC has pursued a monetary policy of trying to contain inflationary expectations by giving short-term responses. “The BC was wrong in the past by being too gradualist,” he said at an Eleven event. The scenario for inflation, Woelz said, has deteriorated a lot in recent months. “It’s running the risk of losing control of expectations a little and the market going after them.”

The way the BC is changing its tone shows that the institution “want to err downwards”, raising interest rates more slowly. If the BC extends the horizon of monetary policy, it will be terrible, said the manager, as 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 evade the responsibility to fight next year’s inflation.”

“It was a huge shot in the foot,” said Woelz, noting that the BC is showing little willingness to bring interest rates faster to the level that the base rate should be. “It seems that it is a Central Bank that if it goes wrong, it will go down, but not up.”

The manager said he will wait for the next Copom meeting to see if there is more information on the new strategy or if it was not a communication error by Campos Neto, which is breaking the strategy made so far towards greater gradualism. “I haven’t digested it yet.”

Ativa Investimentos, in turn, believes in a 1.25 percentage point increase in the Selic rate in September, even with the signaling of the BC.

For the chief economist of Ativa, Étore Sanchez, Campos Neto’s statement aimed to contain the damages of more stretched pricing in short interest rates. “But we cannot be negligent with the advance of inflation expectations for 2022. They were practically insensitive to BC’s austerity. It’s not just another fluctuation or surprise. These are joint factors that lead to an acceleration in the restriction of monetary policy”, says Sanchez, who projects Selic at 8.50% at the end of the cycle.

MB Associados also expects a 1.25 percentage point increase in the Selic rate in September, despite Campos Neto’s speech. “With inflation of 10% and with all the risks ahead, signaling this scenario is complicated. I don’t think the BC’s models will indicate a calm scenario for inflation. The president says that now, but it won’t necessarily happen”, analyzes the chief economist at MB, Sergio Vale.

For the economist, the signs of a slower interest rate hike may make it difficult to control expectations for the 2022 IPCA, in addition to delaying the growth acceleration. “The 1 point increase is possible, but it shouldn’t be the case. The situational assessment is becoming unanimous, with everyone reviewing the exchange rate, inflation and the Selic rate upwards. BC sets a softer tone than it should,” says Vale.

Even before Campos Neto’s speeches, XP, Citi and Itaú had revised projections for the Selic level at the end of the interest rate tightening cycle.

The chief economist at XP, Caio Megale, points out that the Selic must be raised to 8.5% per year to combat the more widespread advance of inflation registered in the last IPCA.

Citi, on the other hand, understands that the BC will take the interest rate up to 8.75% at the end of this year.

Finally, Itaú believes in three more consecutive increases of one percentage point and the last one of 0.75 pp, taking the Selic to 9% per year in 2022.

(With State Agency)

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