Former director of monetary policy at the Central Bank between 1999 and 2003 and today president of Mauá Capital, Luiz Fernando Figueiredo says that the institution accelerated the pace by cutting 0.75 percentage points in the Selic interest rate. However, for him, there is room to reduce further. “I would go to close to 2% much more quickly. Even being more aggressive, the BC is still more cautious,” he says.
Below are the main parts of the interview.
How do you evaluate this new Selic cut?
This cut was more than expected. In fact, today the market understands that we need more. So, what everyone believes, and I myself, is that new cuts will come. To give you an idea, the inflation rate at the beginning of the year was projected at 3.50%, 3.70%. Today, it is much more to 1.5%. Our interest rate ended up getting very high.
What is the space for further falls?
The interest rate is expected to come close to 2% this year. In my view, BC rightly picked up the pace. And it left the door open for another cut and, next time, another cut of 0.75 percentage point may come, going to 2.25%.
Did the political crisis influence the decision?
It seems not. Copom’s decision was already taken before this political crisis, when Sérgio Moro left the government. The BC is concerned with the political issue only in the extent to which it has an impact on fiscal reforms which, in the end, end up having an impact on inflation ahead. It is in that direction that he looks. It is not a fact or another that will change the position of the Central Bank, but a set of things. In a way, this political crisis, which is not new, was already incorporated into the decisions.
Why, in your opinion, was BC not even more aggressive?
The Central Bank has excelled in being cautious. I would go to close to 2% much more quickly, but this is somewhat the way in which our Central Bank has preferred to act. Even though he is more aggressive, he is still more cautious. It even differs from many central banks around the world, including emerging countries.
Should this sharp drop increase the pressure on the dollar, which has already appreciated by almost 42% against the real this year?
This is an issue that all analysts have raised. In practice, the exchange rate has been under a lot of pressure. Our currency is perhaps the worst in the world in 2020. Our currency has for many years been dependent on a higher interest rate. Today, that dependency has fallen brutally. What has affected our currency the most has been this political noise and the fear that future fiscal policy will not be responsible. This has impacted the exchange rate much more than lower interest rates.
Has the BC been able to respond efficiently to the challenge that has arisen since the escalation of covid-19?
With regard to liquidity and security issues in the financial system, the BC is doing very well, my rating is very high in this regard. Not only due to the size of the expansion, which is around R $ 1.2 trillion, but because the BC is doing it in a smart way so that resources are not wasted. In monetary policy, even with the pace of now, I think we are very slow, given the magnitude of the fall in activity and demand.
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