The BC director cited the need for caution and flexibility in the face of the uncertainty environment economy
On Thursday, Dugo Gillen, Director of Economic Policy of the Central Bank, said in the face of an environment of uncertainty, the monetary authorities must be cautious and flexible. In a meeting with international investors, organized by the XP Investmentos in Washington, he reiterated the opinion that central banks are committed to bringing inflation to the target, and now they have a new fact to review American growth estimates, accompanied by a discussion about inflation expectations in the country.
He pointed to the risks that increase in the balance of the Monetary Policy Committee (COPOM). On the one hand, the trauma of customs tariffs in the United States caused a lot of noise. On the other hand, there was, in addition to commercial shock, a financial shock, with possible effects on risk hatred.
In this event, which is held in parallel with the Spring Fund of the International Monetary Fund (IMF) in the American capital, he spent more than usual to approach the international scenario.
Moderation of economic activity
The Director of Economic Policy of the Central Bank also indicated that the moderation of economic activity, as is the case in the municipality’s local scenario, is important for the rapprochement of inflation towards the target. Gillin reiterated the prediction that the product gap should be reversed, from positive to 18 months negative.
According to the director, monetary policy works, and on educational lands will bring back inflation to a 3 % goal.
In this event, the director indicated that – amid surprises in growth because, above all, inflation surprised inflation a little in the past three years.
He considered that although there is no concrete evidence of moderation in GDP (gross domestic product), there are primary signs of slowdown and low confidence rates. However, it was considered that the behavior of activity indicators in the recent period is not decisive.
Gillin considered it difficult to see a positive aspect of Brazil from the shock of the US government. He said that the uncertainty resulting from President Donald Trump’s commercial policy has difficult effects on its measurement.
In this environment of uncertainty, the director stressed that it is important to be transparent in communication. This does not mean, however, providing instructions, that is, a sign of the steps following for monetary policy.
By unanimously reaffirming the British Columbia with discouragement of expectations, Gillin said inflation is still fixed and leaked above the target. He stressed that the average core is the highest monthly target ceiling with the seasonal modification for several months.
Commercial trauma effect
The Director of the Economic Policy of the Central Bank assessed that the US government tariff affects Brazil on the financial side more than the commercial side. “The impact of commercial shock in Brazil is more than a financial channel,” Gilin said.
He said that the “great question” that the British Columbia noted is what will happen to reality, in the face of the aversion to the risks resulting from the American tariff, as well as the influence of quotes of commodities issued by Brazil. Twice, the director stressed the need for central banks to be more cautious and flexible in a world of high uncertainty.
By enhancing the vision of continuous inflation, Gillin said that although the atrophic inflation in Brazil is low, the market expectations, which were presented in the focus bulletin, have moved little.
In this event, he pointed out that the strong labor market explains why there is a positive credit force, despite restricted interest rates. In this sense, Gillin emphasized that the BC reaction function is not only understood, but stable, and the mechanisms for transmission of monetary policy are working. However, it is diluted with other factors, which has been evaluated.
The projection error
The Director of Economic Policy of the Central Bank attributed the errors in predictions about inflation behavior in recent years to estimates that were wrong in the product gap – that is, about the level of economic activity.
“When I look at the errors of inflation in the past two years, my answer is that we have made errors on the product gap. So it is about surprising growth from sudden inflation,” Gilin said.
According to the director, it is not the case that put the product gap on the estimated floor in the BC model. “We are trying not to change much of what the model tells us. The model remains important. The opinion that the model helps to organize the discussion, and think about what is the rhythm and speed of inflation.” In this event, Guilllen also argued that it is important not to change the BC reaction function over time.
