Improvement in the job market renewed pressure on the BC – 04/01/2024 – Adriana Fernandes

The heated job market with positive numbers for the Brazilian economy renewed political pressure against the Central Bank.

The subject promises eye-catching headlines from now on.

It’s the topic of the moment in Brasília. It’s a big deal for critics who began to explore the narrative that the BC was taking advantage of positive economic data to increase interest rates.

The most recent text came from the Minister of Labor, Luiz Marinho, who ordered the Central Bank to better study the fundamentals of the economy and added that raising interest rates is a stupid way to control inflation.

Following the pattern of criticism, federal deputy Lindbergh Farias (PT-RJ) led the way by posting on social media that the BC blames high interest rates on the increase in employment and income.

“It is clear that Campos Neto does not want Brazil to grow! In other words, for Campos Neto, the interest rate has to rise because the salary has risen!”, wrote the PT member.

What few realized is that, in the criticism, they gave the false idea that the BC was increasing interest rates, which is definitely not the case.

More measured, Minister Fernando Haddad (Finance) said he hopes that the BC will not be alarmed by the number of jobs created in Brazil.

Concern about the possible inflationary effect of higher wages resulting from improved employment had already been highlighted by the BC.

But it gained strength after the Copom cut the Selic by 0.5 percentage points to 10.75% and wrote, in one of the paragraphs of the meeting’s minutes, that Committee members showed greater concern about “possible effects of the expansion of real gains in the most recent growth and the acceleration of growth observed in data referring to the wage bill on the prospective dynamics of inflation in services”.

The paragraph generated the trigger for this new wave of criticism. The fear in the offices of the Lula government and allied parliamentarians is that the Copom will reduce the rate of fall in the Selic rate or shorten what the financial market calls the terminal interest rate of the current cycle of monetary easing. In other words, how far interest rates will fall.

Added to this concern is the BC’s decision to change the signaling of its communication for future cuts and guarantee the rate of decline of 0.5 percentage points only until the next meeting. In the previous statement, what was written was “upcoming meetings”.

There are sectors that will always hit to put pressure on the BC. It’s part of the political game.

Despite the legitimate concern about the impact of interest rates on growth, however, criticism, at least within the government, should take place at a higher level, also concentrating efforts to approve measures to allow for an increase in labor productivity in the country. Agenda that Minister Marinho should be 100% focused on.

The pressure from critics also targets BC directors who were appointed by President Lula. The tone generated the interpretation that there would be a potential division among some Copom members given the increase in uncertainties.

A point that ignores the fact that there was consensus among Copom members in the assessment that it would be a mistake to interpret the change in communication as a change in the BC’s flight plan for terminal interest.

If this point of consensus was raised by the directors of the BC, the most prudent thing would be to make adjustments to the communication and fix what would then be misinterpreted in the minutes.

The BC itself says in the minutes that it will continue to monitor the data in depth, given the difficulty of reaching an “assertive conclusion” about the lags between the labor market and economic activity.

If everyone understood it one way, it’s not the fault of those who read it, but of those who wrote it.