The War Against the Central Bank
The Central Bank, aware of the need to keep monetary policy in restrictive territory, kept the SELIC rate at 13.75% at the last COPOM meeting, and stated that it will not hesitate to increase the rate if necessary. A level-headed analysis of the projections clearly shows that if the monetary authorities choose to attain the target in 2023 or 2024, their only alternative would be to raise the interest rate even more. In other words, by extending the period for convergence to the target, the Central Bank explicitly considered the cost of disinflation measured in terms of slower growth, and decided to reduce it.
The government does not acknowledge this effort, and instead of hastening the publication of a fiscal framework with details on the measures necessary to achieve a fiscal adjustment of at least 3.5% of GDP, stepped up the criticism of the Central Bank. The indication given by this lamentable situation is that the fiscal-monetary conflict that has characterized economic policy in recent years is far from being resolved. In this report, we present evidence that the inflation of the prices of items sensitive to the economic cycle has not entered a downward path, meaning that the deceleration of economic activity necessary for inflation to converge to the target has not yet occurred.
Although the Central Bank of Brazil is following the same policy as other politically independent central banks, the government prefers to ignore this fact, insisting on attributing to its spending an important role in accelerating growth. The conclusion is that the fiscal-monetary conflict is far from being attenuated, and will continue to result in high costs.
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