Tightening Brazilian monetary policy is the best way

With the tightening of monetary policy, Selic was at 5.25% per annum. Photo: Marcelo Camargo / Agência Brasil

A country’s monetary policy is a kind of thermometer that allows the market to predict risks and opportunities. This is what helps guide the economy to try to control inflationary movements outside the ideal range, for example. After all, by raising the benchmark interest rate, inflation, driven by persistent price increases in certain economic sectors, should subside. On Tuesday (10), the Central Bank published the report of the Monetary Policy Committee and, as expected, the tone was cautious.

According to Copom, the persistent inflation of consumption, coupled with the surprise rise in inflation in services and the continued pressure on industrial goods, allowed the CB to decide on a 1 percentage point increase in the Selic, which reached 5.25% per year. For the end of 2021, the outlook for the Focus Bulletin is 7.25%, and could still exceed this level, as some economists expect.

To corroborate this scenario of inflation under pressure, this Tuesday we had a new acceleration of the IPCA (Broad Consumer Price Index). The index rose 0.96% in July; in 12 months, the highest reached 9%. Another point which is on the Copom’s discussion table – and which can work against the control of inflation – is the budgetary risk. According to the BC, even with the recent improvement in public debt sustainability indicators, “the high fiscal risk continues to create an upward asymmetry in the balance of risks, i.e. with trajectories of inflation higher than projections for the horizon relevant to monetary policy. Politics”.

On the investment side, this whole discussion brings us to the importance of portfolio diversification. Putting money in fixed income securities, with assets tied to inflation, is a great move. Not only in this context of rising prices, but in any situation because it is not possible to predict exactly when inflation will fall.

This set includes fixed income assets such as mortgage receivables certificates (CRI) and agro-food (CRA), bank certificates of deposit (CDB) which are indexed to the IPCA and the IPCA Treasury itself, this which is indicated for those who want long term assets. term, thinking of a safety cushion for retirement.

Therefore, we see an effort towards more timely behavior on the part of the Committee, which has already reported another 1 percentage point increase in the Selic rate for the next meeting (6.25%). The market took a positive view of the way the CB conducted its monetary policy, without major mood swings, maintaining its rhetoric. Thus, the aim is to smooth fluctuations in the level of economic activity and promote full employment, a great challenge not only for Brazil, but for the post-pandemic global economy.

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