BC’s main objective is to pursue 3%inflation target, says BC director

Central Bank Monetary Policy Director Nilton David reiterated on Monday, 31, that the main objective of the monetary authority is to achieve the 3%inflation target. Without prejudice to this main goal, the BC also aims to soften the oscillation of economic cycles, he recalled.

“The Central Bank will seek the most reasonable way to reach these 3% first, of course in view of the consequences it has for both sides,” the director said in an online event at Itaú BBA.

In December, for example, the BC realized that being more aggressive would produce better results for anchoring expectations and to reach a much faster interest rate, he explained. In the last month of 2024, the BC increased to Selic in 1 percentage point and signaled two more increases of the same magnitude in January and March.

Read more: Analysts reduce projections for dollars, points out Focus Bulletin

The disadvantage of this fast process is not having time to observe the impacts of monetary policy, by the lag, he said. “The question, now, is what the coming months will be, where the expected is that inflation will not cool over the next three, four, five months, and how the dynamics of market expectations and agents behavior will be. Based on this, we will calibrate,” he explained.

David reiterated that the BC has to put the Selic rate at a little more restrictive level than it would be needed before, so that it has an impact on all agents, as some companies have cheaper access to encouraged. The deceleration of the activity is a question, but the BC guides interest on inflation, he highlighted, adding that a “gentle landing” in Brazil is challenging.

Focus

At the same event, the Central Bank’s director of monetary policy noted that, despite the appreciation of the real in the first quarter, the expectations of inflation in Focus increased. He recalled that monetary authority does not make judgments about the future dynamics of currency, which is captured from inflation levels.

“We can conjecture that research participants may not have a perception that was a permanent change, perhaps it is temporary, or that there are other variables that have changed, that more than compensated for the pressure of the real,” said David.

The director considered that, under normal conditions, Volatility History of the exchange rate is 1% per day. This means that the standard dollar deviation between monetary policy committee meetings is around 10%.

“No wonder the Central Bank insists that there is no mechanical relationship between exchange and monetary policy,” said David. “It would not be reasonable to put the risk of changing the bias of a monetary policy by a variation of the currency that can be noise just.”

‘Chinese Wall’

The director of monetary policy also stated that there is “almost a Chinese Wall” between monetary policy and macroprudential measures in the municipality. He assured that separating the two is “almost an obsession” from the BC.

“The tightening of monetary policy can shoot macro -prudential issues, these are things that have some correlation and argument? Yes. If any, it will be treated in such a way, but never with the main objective that is different from that side, simple, very straightforward and to the point,” he said.

Asked on the subject, David said that the correlation between actions and interest should be resumed in the medium and long term.

He considered that the discrepancy between actions and rates seems to have been pulled by risk taking through the new policies of US President Donald Trump.

“I think it was a half and atypical thing of a process, there are so many things that are almost a perfect storm for it to mess, but the expected in the medium and long term is that this correlation will exist again, but the noise may stay much longer than at other times,” David said.

Demand for credit

The director of monetary policy foresaw that the wave of greater credit demand must be close to the end. “This has to do with what I mentioned earlier. Credit had quite idiosyncratic impulses from (changes in law) offshore and also with money relocation,” he said, estimating that there were almost $ 400,000 that came out of multimarket funds and literally went to the credit market.

According to him, it is added that the fact also that for almost two decades the whole world has been trying to reduce banks’ dependence on credit supply. For this, he recalled, more capital is required because of leverage, and more costs are put to banks to give credit.

With this picture, according to the director, the market ends up finding alternatives and forming arteries to make the credit reach the final borrower. “Then he joined regulation with conjunctural things, such as offshore, the high interest level of the cycle where we are now and the relocation of multimarket funds,” he said.

David added that there was also a promotion of credit roles here for investors, not necessarily private, which also led to extraordinary demand for credit. “Despite the tight monetary policy in Brazil, it is cheaper to take domestically credit than it was. A company that can take here and can take it out, she knows this and she takes cheaper here and prepaid her debt away,” he explained.

The director also commented that there is no relevant external liabilities in Brazil today and that it is possible to measure how expensive it is out there. “Beauty is that our external vulnerability has fallen tremendously,” he said, repeating that credit prices in Brazil are not compatible with the outside. The expected, according to him, is that they live over time. “I do not expect new waves of credit acquisition. I do not know if this wave has already arrived here. So the point is that it is coming to the end, this increase,” he projected, explaining that he expects credit prices to approach what it was earlier.

David also emphasized that the issue of changes in regulation referenced by Basel do not occur in Brazil alone. “We are just part of what is happening worldwide, even due to economic stability and systemic risk, I think it is quite healthy. What is happening is that there was an entry and a novelty for the Brazilian investor in this universe and had this temporary price change.”