Guilherme Mello, nominated by Haddad to head the Central Bank, advocated for changes in monetary policy.
The Secretary of Economic Policy stated that high interest rates have caused a contraction in credit and that the inflation trajectory may allow for a gradual adjustment.
247 - The nomination of the Secretary of Economic Policy of the Ministry of Finance to the board of directors of the Central Bank has reignited the debate about the direction of monetary policy in the country. Although the name was put forward by Minister Fernando Haddad, the final decision on the choice of the new director rests with President Luiz Inácio Lula da Silva, and the nominee will still need to undergo questioning and a vote in the Senate. This information comes from the newspaper... The Globe.
Currently, the Central Bank has two open positions on its board of directors. One is in the Economic Policy Directorate, a strategic area responsible for providing the technical basis for the Monetary Policy Committee's (Copom) decisions on the Selic rate and for communicating monetary policy. The other vacancy is in the Financial System Organization and Resolution Directorate, which monitors the structure of the financial system and conducts institutional resolution processes.
In a press interview presenting the government's projections for macroeconomic indicators, such as Gross Domestic Product (GDP) and inflation, the secretary stated that the available data points to a scenario that could allow for a gradual shift in the Central Bank's actions. According to him, there is confidence that inflation will move towards the 3% target, even if this process is not immediate.
“Minister Fernando Haddad is confident in this trajectory that our numbers, the Central Bank's numbers, and even, to a certain extent, the market's numbers show, which is the following: we will have a convergence of inflation to the target (of 3%), it will take time, it will not be immediate, just as we will have a cycle compatible with our potential going forward. And this trajectory is a benign trajectory that allows for a change in the stance of monetary policy,” he stated.
The secretary stressed that the discussion does not involve a drastic change in the current interest rate scenario, but rather the appropriate time to begin the easing process. — “(The change in trajectory) would not be immediate either, from ultra-restrictive to neutral or expansionary, that's not what is being discussed. The question is not about the trajectory, everyone agrees on that. The discussion revolves around the timing, when,” he said.
According to the secretary, setting the Selic rate at 15% per year represented an "ultra-restrictive" stance by the monetary authority, with direct and significant impacts on the credit market. "The policies, both fiscal and monetary, have produced real effects; therefore, the interest rate has, in fact, impacted the credit market, and it's not a small impact. It's an impact that is already leading us into the realm of contraction, not just a slowdown, in the credit market," he stated in an interview given in November.
At the Copom meeting held last week, the Central Bank signaled the possibility of starting to cut the benchmark interest rate at the meeting scheduled for March, reinforcing market expectations of a gradual change in monetary policy.
The secretary's name was presented by Fernando Haddad to President Lula as one of the options to fill a director position at the Central Bank. Although the head of the Executive branch will still deliberate on the matter, Lula has followed the minister's recommendations on other occasions, such as in the case of Gabriel Galípolo, the current president of the Central Bank and former executive secretary of the Treasury.
At the head of the Secretariat of Economic Policy, the nominee will lead the core team responsible for official projections of inflation, economic growth, and fiscal results that underpin decisions and proposals of the federal government. It is from this area that the scenarios and simulations used to calibrate economic measures and respond to external shocks originate. Despite this, market agents have reacted cautiously to the possible nomination, citing a profile considered more heterodox.
In the interview given in November, the secretary was also questioned about the need to wait for projected inflation to reach the center of the target before starting to reduce interest rates. He stated that this assessment is up to the Copom (Monetary Policy Committee). "This may be a factor they evaluate, but there is no automatic response on this issue," he said.
Currently, the two vacant seats on the Central Bank's board of directors remain occupied on an interim basis since the end of last year. The Directorate of Economic Policy is under the temporary responsibility of Paulo Picchetti, Director of International Affairs and Corporate Risk Management, while the Directorate of Financial System Organization and Resolution is temporarily headed by Gilneu Vivan, Director of Regulation.
