The Central Bank is like a football referee: when no one talks about it, it’s great. When monetary policy is a dull affair, the Central Bank is succeeding.
Sometimes, however, football referees have to make difficult decisions and cannot escape the spotlight. If the home team’s goalkeeper pushes two opponents, the referee will decide whether to send him off or not.
Likewise, the Central Bank often has to choose between the risk of increasing unemployment and the risk of seeing the inflation monster emerge. Then, the BC’s decisions will inevitably be on the cover of the newspapers.
In these cases, it is reasonable to have disagreements among experts and among members of the Monetary Policy Committee.
For example: a year and a half ago, the English central bank decided to increase interest rates to 3.5% per year, but two people voted to keep the rate at 3%, while another voted to increase it to 3.75%. Similar votes would take place at subsequent meetings.
With so much discrepancy, clashes and discussions are inevitable.
In those months, criticism rained down on the two economists who had voted to maintain the interest rate. But, in general, the criticisms were not about shady interference, political interests or sabotage.
Here is different. In Brazil’s political narratives, monetary policy is always the stage for a story of good versus evil.
At the last meeting, five members voted in favor of a 0.25 percentage point reduction and four members voted for a 0.5 percentage point reduction. The two positions were similar and seemed reasonable to me. However, there was only talk about political interference to reduce interest rates (in the stories about the four bad guys) and about the BC sabotaging Brazil with high interest rates (in the narratives about the five bad guys).
At this Wednesday’s meeting (19), the Copom is expected to maintain the Selic at 10.5%, with little or no disagreement, but there will be no shortage of comments with a political background from party leaders and social media commentators.
The debate did not reach this very low level by chance.
The PT has always used monetary policy and the Central Bank to construct political narratives – the scene with the dishes disappearing from the table in Marina Silva’s presidential campaign is one of countless examples.
In this Manichean fiction, the PT is the defender of the poor against high interest rates. It seems natural, but, in my opinion, since the beginning of the target regime, the Central Bank’s main mistake on the side of too high interest rates was in 2005, when Lula was president and could fire the BC president.
In turn, Roberto Campos Neto should have the attitude of an autonomous Central Bank president. He could never have voted with the national team’s shirt and should keep a greater distance from politicians and presidents. He was wrong and continues to be wrong about this.
It was different.
There was the day when Michel Temer called the then president of the Central Bank Ilan Goldfajn to a big event at the palace, and Ilan explained that he couldn’t go, it was Copom week. Temer insisted, the event had nothing to do with monetary policy, all ministers would be present. Ilan maintained no. Copom week was a period of silence.
This silence did not silence the critics (it was the “BC of bankers’ dreams”), but it was a way for the independence of the Central Bank to be heard by those who remained attentive to the BC’s actions.
It worked. In a short time, inflation was at 3% and interest rates at 6% per year (I think the reduction in BNDES credit was crucial for this, but of course, the BC was fundamental).
We could have a healthier economic policy discussion.
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