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Does Brazil’s Campos Neto deserve to be Central Banker of the Year?
Natália Scalzaretto . Jan 05, 2021
Roberto Campos Neto during a February 2020 event in the Presidential Palace. Photo: Marcos Corrêa/PR
Roberto Campos Neto, president of Brazil’s Central Bank, enjoyed a pleasant start to 2021, receiving The Banker magazine’s reputable Central Banker of the Year award. Given out to the officials “that have best managed to stimulate growth and stabilise their economy,” Mr. Campos Neto won the award after what the publication called his “competent response to the [Covid-19] crisis.” However, had The Banker’s adjudicators actually assessed Mr. Campos Neto’s main role in office, they may not have been so laudatory.
In the magazine’s view, the Central Bank’s measures to boost liquidity and credit had a major role in improving Brazil’s recession prospects from a forecasted GDP plunge of 9 percent to a less dramatic — yet still eye-watering — 4.5 percent slide.
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<p>However, Brazil’s principal monetary authority is not chiefly tasked with fostering economic growth. Instead, the main duty of the Central Bank is to secure the currency’s purchasing power, and all of Mr. Campos Neto’s predecessors who deviated from this mission are not remembered fondly.</p>
<p>In this regard, Mr. Campos Neto could point to the country’s Broad Consumer Price Index (IPCA) as proof of his success. Even with the stress of the pandemic, the index remained within target margins and rose 4.31 percent in the 12 months prior to November. However, as is the case with any broad price index, the IPCA is an average of a large number of changes in the cost of living, with worrying increases often offset by lows in other areas.</p>
<p>During periods of social isolation, consumption changed in Brazil. The weight of services and transportation on the pockets of the average Brazilian diminished dramatically, while food prices became a huge anchor in measuring the cost of living. Indeed, this is not exclusive to Brazil: German federal statistics bureau <a href="https://www.destatis.de/EN/Press/2020/11/PE20_460_61.html;jsessionid=D0666B830B4D9020E1131FA56970668A.internet8712">Destatis</a> began tracking selected products precisely to measure the difference in consumption during the pandemic. </p>
<p>As it stands, the IPCA index presents a more promising picture to those who are not familiar with day-to-day life in Brazil. Groceries are becoming more and more expensive, while monthly bills are also rising. Liter bottles of soybean oil — traditionally the most common and cheapest cooking oil available in Brazil — are currently being sold for BRL 8.50 (USD 1.59), up from just BRL 3.50 six months ago. And as <a href="https://brazilian.report/business/2020/09/09/food-inflation-triggers-warning-for-brazil-bolsonaro/">food inflation</a> continues to grow, it is the country’s poorest populations that disproportionately feel the pinch.</p>
<p>The Brazilian Economic Institute (IBRE), a Rio de Janeiro-based institute linked to think tank Fundação Getúlio Vargas (FGV), measures its own <a href="https://portalibre.fgv.br/sites/default/files/2020-12/ipc-c1-nov20-fgv-press-release.pdf">parallel consumer price index</a> focused on the lowest income brackets of the population. Their latest findings show an increase of 5.82 percent in the 12 months prior to November 2020. Food prices saw a stunning 17.06 percent rise over this same period.</p>
<h2>Diminishing returns from slashing interest rates</h2>
<p>Among the best-known measures taken by the Central Bank of Brazil has been its Monetary Policy Committee’s systematic reduction of the Selic benchmark interest rate. Selic currently sits at 2 percent, its lowest level in history. While it is of little doubt that low interest rates help the economy as a whole — even lower income households — the policy has a limited shelf life.</p>
<p>Slashing benchmark interest rates increases consumption, but Brazil’s recent history shows that any growth led by Selic cuts tends to be short-lived if there is no structural basis to keep rates low. Financial markets are under no illusions in this regard. In the first 2021 edition of the Central Bank’s Focus Survey — which polls economists on a weekly basis on expectations for the year — experts forecast Selic hitting 3 percent by the end of the year and 4.5 percent by the end of 2022.</p>
<h2>Credit where credit is due</h2>
<p>In selecting Roberto Campos Neto as Central Banker of the Year, The Banker magazine does highlight a crucial aspect of Mr. Campos Neto’s tenure, less directly connected to monetary policy. During the pandemic, the Central Bank continued to pursue its digital agenda, launching <a href="https://brazilian.report/tech/2020/12/18/tech-roundup-the-future-of-instant-payments-in-brazil/">instant payment system PIX</a> in November. The scheme has been an astounding success so far and should give invaluable experience and inputs for Brazil’s open banking framework, which is set to be one of the financial highlights of 2021. </p>
<p>Besides this, the Central Bank launched a <a href="https://brazilian.report/?s=TCFD&date_range=all&from=&to=&type=all&section=all">sustainability platform</a>, rightfully reckoning climate change as a risk to be assessed in its monetary policy decisions. In 2021, the bank’s biggest task will be to create new structures such as a green credit bureau focused on agribusiness and to help the financial ecosystem adapt to measures such as the mandatory disclosure of information following standards established by the Task Force on Climate-related Financial Disclosures (TCFD). </p>
<p>There are undeniable merits of the current Central Bank administration, but many of their successes have been in the pipeline since at least 2016, when former bank president Ilan Goldfajn kickstarted his so-called BC+ Agenda. Mr. Campos Neto, meanwhile, has built upon the work of highly-competent technical experts and improved upon already stable foundations.
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