Divided Copom raises concerns among members of Lula’s economic team

The explicit division between the more flexible position of Central Bank directors appointed by President Luiz Inácio Lula da Silva and the tougher vision of the group in the position since the Jair Bolsonaro administration raised concerns among part of the government’s economic team, according to reports collected by Reuters with authorities this Thursday (9).

Speaking on condition of anonymity, some sources from the Finance and Planning ministries expressed fear of a possible loss of credibility of the monetary authority, which will soon have a majority of Lula’s nominees, while the battle against inflation has not yet been won.

Another part of the authorities interviewed preached caution until the BC explains the board’s divergence.

“Terrible, both sides made a mistake, I confess I was surprised. In general, I defend divergence in collegiate bodies, including the Copom, but yesterday was not the day. Everyone lost, and the country together”, said one of the authorities.

On Wednesday, the Monetary Policy Committee (Copom) decided, by 5 votes to 4, to reduce the pace of monetary easing and lower the Selic by 0.25 percentage points, to 10.50% per year. The group defeated in the vote, which defended a stronger cut of 0.50 points, is made up of all the directors who were nominated by Lula – Ailton de Aquino, Gabriel Galípolo, Paulo Picchetti and Rodrigo Teixeira.

In this source’s assessment, upon identifying that there would not be a majority for a more intense cut in the Selic, the “losing” group should have given in, causing at least part of those nominated by Lula to also vote for a 0.25 point reduction in basic interest rates. . This, for her, would eliminate political noise and convey the vision of a BC concerned about inflation.

“If it was already going to lose, (at least) it maintains credibility with the market”, he stated. “A BC’s credibility is all it has. Without this, it collapses, the sacrifice rate goes up a lot, the cost of controlling inflation becomes much more painful for society.”

Amid the negative reaction of economic agents after the decision, with the deterioration of indicators such as the exchange rate and the Brazilian stock exchange this Thursday, a second source stated that it will be difficult to remove from the market the impression of political bias in the BC’s command, and restore “something distinct from the which they have already consolidated as truth.”

“The clear distinction (between the two groups on the board) was not good for Copom’s institutionality and for a smooth transition,” he stated.

Currently, of the BC’s nine directors, four were appointed by Lula, while five have been in the post since Bolsonaro’s administration. The next mandates to expire, in December this year, are those of Campos Neto, Carolina Barros and Otávio Damaso.

Two other sources defended caution in the preliminary assessment of the Copom’s decision, with one of them stating that the issue should be clarified later, in reference to the minutes of the collegiate meeting, to be published next week with greater disclosure of details about the disagreements between directors.

One of them also criticized the moment chosen by the BC to reduce the pace of monetary easing, amid a scenario of still high real interest rates and current inflation showing benign behavior.

“I think BC is absurdly hasty. Being thrifty with real interest at 7%, what’s the point? It’s complicated,” he said.

A fifth authority, while also defending that the details to be given in the Copom minutes should be awaited, highlighted that despite the divergence, the statement showed consensus in the BC board’s general view of the economic scenario.

The document released on Wednesday night showed that the Copom, unanimously, “assesses that the uncertain global scenario and the domestic scenario marked by resilience in activity and unanchored expectations demand greater caution”.