Stimulating consumption can keep inflation high, says Rafaela Vitoria

The Copom (Monetary Policy Committee) of the BC (Central Bank) announced, this Wednesday (17), a cut of 0.25 percentage points in the interest rate.

The decision, taken unanimously, was widely expected by the market, but the official statement drew attention for being longer and more elaborate than the previous ones.

In an interview with CNN Prime Time, Inter's chief economist, Rafaela Vitoria, evaluated the main points of the statement and highlighted that excess information can generate more uncertainty than clarity.

"Every time the Copom presents simulations about scenarios, this ends up generating a certain uncertainty, leaving room for interpretation", he stated.

Fiscal risk at the center of the debate
The Copom statement once again included fiscal risk in the balance of risks, something that Rafaela Vitoria interpreted as an important signal.

According to her, federal government spending grew more than 14% above inflation in the first months of the year, significantly stimulating demand and consumption.

"The government has been introducing new programs, subsidized credit measures, and this has a risk of stimulating demand even further and keeping inflation higher", warned the economist.

For Rafaela Vitoria, by reincorporating the fiscal risk into the statement, the Copom would already be, in a way, signaling a possible person responsible for a possible pause in the cycle of cuts.

She explained that, if the stimulus is prolonged and consumption remains high, inflation could remain at high levels, increasing the risk of interest cuts being interrupted.

El Niño and services inflation
The Central Bank statement also mentioned the El Niño phenomenon as an additional risk factor, especially due to its potential impact on food production.

Rafaela Vitoria, however, considered that food and fuel inflation is more volatile and that the Copom tends to focus on the impact of these items on services inflation.

"A potential increase in food prices due to El Niño will be towards the end of the year and the impact of this would be more on inflation in 2027", he said.

For her, the biggest concern at the moment continues to be domestic demand.

Interest rates in the United States and impact on Brazil
When asked about the possibility of rising interest rates in the United States - a scenario that was not on the market's radar -, Rafaela Vitoria explained that the impact on Brazilian monetary policy would be indirect, mainly via exchange rates.

"The main factor resulting from a possible rise in interest rates in the United States is a flight of investors," he said.

According to her, higher interest rates in the US attract investors in search of higher yields, reducing appetite for emerging markets like Brazil and putting pressure on the exchange rate.

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Source: CNN