Central Bank draws attention to the importance of structural fiscal reforms
Today the Copom Minutes were released, a document that justifies the Selic rate decision. According to the report, The inflationary scenario remains challenging and poses a series of risks.
The biggest risk comes from the supply shock with the rise in oil prices due to the conflict in the Middle East between the USA and Iran. Another source of uncertainty is the worsening of inflationary expectations – this year the projected IPCA is at 4.9%, according to the Focus bulletin – and the resilience of the job market that brings pressure on consumption.
In addition to these factors, the Central Bank draws attention to the importance of structural fiscal reforms which could contribute to reducing the Selic more intensely.
However, this path is very unlikely, especially in an election year. This year, a fiscal package of R$100 billion is estimatedrepresenting half of GDP growth. This fiscal impulse brings pressure on prices, as aggregate demand rises above the country’s potential.
Fiscal stimuli, together with uncertainties regarding the duration of the conflict in the Middle East, make the scenario for the Central Bank highly challenging to control inflation. It will be no surprise if at the next meeting the basic interest rate remains at 14.5% per year
