Fynsa
Over the past few months I have had several discussions in the office regarding the TPM. Discussions of ideas, of course, that the current level of the rate would be tearing apart certain sectors of the economy and, given this, it should already be coming down or, at most, begin to do so as soon as the next meeting. I get to be the bad guy in the movie, because I have to justify that none of that should happen and that the rate should stay at its current level for at least another couple of months.. By now, my popularity points with the real world must be on the floor.
However, our estimate of the TPM has little to do with my feelings towards business or debtors and a lot to do with my reading of what the Central Bank's board is thinking (or not). I always tell clients that all but one of the variables in our macro scenario are estimated within our models. The monetary policy rate projection is not about what "we" would do and, rather, what we estimate the Central Bank will do. And that makes a significant difference in how we understand our role as economists in a financial group and not as academia economists, policy makers or policy opinion makers. Prices are defined by what is, not by what we think should be.
In this way, one of the main tasks we carry out is to read almost everything that is published by the issuing entity in this regard. Recently, although it seems not to have been so important, the last Monetary Policy Meeting held last Friday, at 18.00 (friends of the communications division, really?), gave several signals about what would be the monetary policy strategy during the next few months, gave several signals as to what would be the monetary policy strategy for the coming months.
Recent activity and, above all, inflation data had been perceived by the market as strong signals that the tightening cycle could be coming to an end. However, although the figures seem to be moving in that direction, it is still too early to declare victory and/or to ensure that the process of resolving macro imbalances is fully confirmed. The June meeting (with IPoM) is just around the corner and, for it, we will only have the additional information coming from the 1Q2023 National Accounts (May 18), the Imacec data for April and the CPI for May. While we expect trends to consolidate, this would still not be enough for the Board, which insisted on the language in the current IPoM, suggesting the possibility of instance rate cuts as of next September. It is true that the monetary policy corridor contemplates earlier cuts, but this would require that the figures observed so far have been much more eloquent regarding the easing of inflationary pressures than they have been so far.
Therefore, whether we like it or not, the Central Bank will remain firm in its objective of propping up inflation towards its two-year target of 3%, and as long as this does not happen, it will not begin to reduce the rate. This does not deny that this decision is detrimental to various sectors of the economy, but these cons do not outweigh the negative aspect of not controlling prices in time and the long-term effects of this on household welfare. So, as Guns N' Roses used to say, a little patience.
