BC Director cited the need for caution and flexibility in the wake of uncertainty environment

The Director of Central Bank Economic Policy (BC) Diogo Gillen said on Thursday that monetary authorities should be careful and simple in the face of uncertainty environment. At a meeting with international investors organized by the XP Investments in Washington, he reiterated that central banks are committed to bringing inflation to the target and now have a new fact to review the US growth expectations, along with debate on inflation expectations in the country.

He cites two risks in the Monetary Policy Committee (Copom) balance. On the one hand, the shock of tariff policies in the United States caused a lot of noise. On the other hand, in addition to commercial shock, there is a financial shock, with potential effects on risk aversion.

At a parallel to the spring meetings of the International Monetary Fund (IMF) in the US capital, he spent more time than the casualty of reaching the international scenario.

Control of financial activity

The central bank’s economic policy director is also important to change inflation towards the target, as the control of economic activity, the local scenario of the municipality. Gillen reiterated that the production gap should be reversed from positive to negative in 18 months.

According to the director, monetary policy works, and brings inflation to a target of 3%in a contraction land.

At this event, the director recognized – amidst surprises in growth, above all, stimuli from demand – inflation was a little surprised in the last three years.

He felt that although there was no evidence of control in the gross domestic product (GDP), the initial signs of degeneration and the rate of confidence were lower. However, he felt that the behavior of operational indicators was incomplete in the last period.

Gillen thought it was difficult to see a positive aspect of Brazil from the US government shock. President Donald Trump has difficult effects to measure the uncertainty created by trade policy.

The director stressed that this uncertainty is important to be transparent in the atmosphere and communication. However, this is not meant to be guidance, that is, a sign of further stages of monetary policy.

By reiterating the unanimous discomfort in the BC with the discouragement of expectations, Gilen said inflation is widespread and wider than the goal. He emphasized that the average of nuclei, the monthly target of the monthly target, is monthly with seasonal adjustment for months.

The effect of commercial shock

The Central Bank’s Finance Policy Director is predicting that the tariffs of the US government will impact Brazil on trade. “The impact of the commercial shock in Brazil is greater due to the economic canal,” Gillen said.

He said that the “big question” observed by BC would have an impact on the risks produced by American tariffs, as well as the quotations of Brazil exported goods. The director emphasizes the need to be more careful and simple in the world with high uncertainty in the world with high uncertainty.

By strengthening the attention of continuous inflation, Gillen said, despite the reduction of unintended inflation in Brazil, the market estimates presented in the focus bulletin have been very low.

At the event, he found that despite the compulsory interest rates, the strong labor market explains why there is a positive credit inspiration. In this sense, the Gillen BC reaction function is not only understandable but stable, and the procedures of the transmission of the monetary policy are stressed. However, they are reduced by other factors, he evaluated.

Projection error

The Director of the Central Bank has been attributed to defects in expectations about inflation behavior in recent years, for the misunderstandings of the product gap – that is, about the level of economic activity.

“When I saw our inflation estimate errors over the past two years, my answer we were wrong with the product gap. So it was more about having a surprising growth than surprising inflation,” said Gillen.

According to the director, the product gap is not placed on the BC model on the floor. “We will try to change most of what the model tells us. The model is important. It has not changed the impression that the model helps to manage the debate and think about the rhythm and speed of false propaganda.” At this event, Gillen also argued that it is important not to change the BC reaction performance over time.