This year-end has an atypical, very large flow in relation to the two questions. You want to answer that dominance? I can talk about both. Actually, just one point: exchange intervention has no link with dominance. What happens is that when the world is, when the market is looking for a hedge, and again, the market is not Faria Lima. A company that exports, imports, a company that has a structured operation, buying land, buying a machine, it is also concerned with interest rates and exchange rates because it is part of the cash flow it set up for that operation. So what we understand is that when you act in one market, there is a spillover to the other. When someone is looking for a hedge, if we intervene in the exchange rate and someone is looking for a hedge, for example for country risk, we have a spillover to the interest rate. We in no way think this is dominance. This is something we have always said, including that it is the reason we never defend a price level, because we have a search for a hedge that can spill over into the interest rate, generally the long-term rate. So just making that point: these two factors — exchange intervention and dominance through this contamination of interest rates — are not dominance. It is simply a search for a hedge that ends up having an alternative. Excuse me.
Well, before I answer, I will take this opportunity to thank Roberto. Roberto, in several meetings, he cited Powell, but it was not Jeremy Powell, it was Colin Powell, referring to you exercising influence in a meeting environment not by authority but by experience and advice. And I am a witness to the generosity that Roberto had throughout this transition process. Sometimes Roberto uses the word smooth, sometimes I use generosity, but the truth is that it was a transition between friends. It was very friendly, and Roberto was very, very generous indeed in this transition process. Throughout the process of giving freedom, in all meetings, being able to speak, it was important that Gabriel now has a different weight in the vote, and that was the case over the last few meetings. So just thank you, Roberto. I am very proud that you gave me this opportunity to go through this first transition of the BC's autonomy, thanks to what you are doing. And I am a witness that Roberto in all meetings acted with concern for the country, always thinking about what was best for the Brazilian economy and for the country, to strengthen us. It is a pride for me to be able to go through this transition, the first test of the BC's autonomy at a time we know with a society in turmoil, but I think Roberto's grandfather would be very proud to know that he made this contribution, showing institutional strength of the Central Bank at this moment. I think the Central Bank gives a great demonstration. I thank you as future president, and I thank you as a Brazilian for everything you did, and as a friend. About the two reasons: first, as you rightly said, the materialization of some risks removed some uncertainty from the path, allowing us to see a little further ahead from the materialization of some risks due to all the reasons presented by Diogo. The size of the announcement we made of a 100-basis-point hike, forecasting two more 100-point hikes, made sense and makes sense for the budget we imagine necessary in this dose and this pace we announced. So I think what is important to say is that there is no doubt that the Central Bank took a clear step in the direction of putting the interest rate at a restrictive level with some certainty. We are walking in that direction, and that was the movement we intended with the guidance and the 100-basis-point hike.
Just to reinforce one or two things: these questions, we will continue here, waiting for more interventions in the exchange market in the coming days. If we understood that the most efficient way to intervene was as we used to do in the past, that is, announcing the interventions, we would have done it. We do not understand that this is the most efficient form at the moment, because we are mapping the flow day by day. We have a perception that a large part of the flow comes until Friday, until next week, because we have a Christmas and New Year week where there is a lower volume of operations. But we will continue monitoring the flow, and we understand that at this moment, with the other fragilities that exist and with the flow that is well above average, and we have explained this, the Central Bank needs to act in the way we are acting. So I cannot answer what will be done in the future, because we will map the flow over time. But I just emphasize again that it is the same way we always did in the past. Diogo, any comment?
Bernardo, good morning, President, good morning directors. I have two questions here. First, about what you were communicating until November and the communication now. In November, Copom had said that a further deterioration in expectations could lead to a prolongation of the adjustment cycle. And now in December, with this deterioration materialized, as I understand, the BC opted for a shock in the Selic of one point and signaling two more. My question is whether, along with the stronger increase in the Selic, the BC also still counts on a longer cycle than previously anticipated. And also about the guidance, I understand that from the minutes, you see solidity in the guidance that was given, but I wanted to understand what kind of change in scenario and with what strength would be necessary for an alteration in this level, and if you could elaborate a little more on what you understand as the causes of the movement in the exchange rate in recent days. Thank you.
Well, I can talk about what we did. I think the question is a question comparing what would be the front-load movement, i.e., giving more movements upfront, and what would be the prolonged movement, and how that speaks to our perception of deterioration or worsening. Obviously we always discuss what is the best way to gain credibility. In the end, our goal is to gain maximum credibility, to have maximum convergence in expectations, doing it as smoothly as possible. So it is always in our conversations. Depending on the volume of deterioration you see, it becomes more important to do something more front-loaded or simply say, 'Look, I think it's sufficient, but it needs a longer period.' When you start to analyze that the rate with the models and projections, even for a prolonged period as far as you have visibility, is no longer sufficient, it becomes necessary to tighten, i.e., increase the pace or do something more front-loaded. I understand that the message we tried to convey is that we think the increase of one with this signaling is an important step in signaling that the Central Bank is committed to achieving the target and understands that we have greater uncertainty than usual. And also understands that some uncertainties have become certainties — not binary, but when we think in levels of gradation, some uncertainties are not so strong because they have materialized, so it has indeed become a more adverse scenario. So I think that's what I can say in that sense, and then pass to Gabriel. But regarding the exchange rate, I think I spoke a little. We look at the year-end flow; there is always a slightly larger outflow because of dividends, remittances. We can usually see the payout ratio, how much of the profits companies are paying as dividends. Companies have flexibility in terms of how much they send; sometimes they send more, sometimes less. We have a perception that dividend remittances are larger, typical. Besides that, there are other types of flows, operations in PTAX that are also a bit larger. And more recently, we saw a flow of people taking money out of the country, including in platforms that are, as I said, smaller operations, but they are atypical in the volume they are happening. Thank you.
Gabriel here. I think there are two that serve for me. The question of the change in the level — I think you were talking about the change in the guidance when you said 'level,' is that what you meant? You were asking: what are the implications of whether it will remain prolonged in addition to having started the cycle? The first point — I've already used, over the year and a half I've been here, several nautical metaphors to talk about monetary policy. I've talked about a navigator who sees a mile and a half ahead, I've talked about not fighting the sea, so I'll resort to — it's not very original, you have a few thousand years since civilization, but I'll also say that there are no good winds for a sailor without direction. So we have clarity on where we are going, with the step we took. I think it was quite courageous to be able to make this signal for two more meetings ahead, based on the materialization of risks. What will happen from there forward, I think we will have to wait to see how it all unfolds. But the fact is, as Roberto well said, it is very clear in which direction we took this step: it is towards moving to an interest rate at a restrictive level with some certainty. And about what needs to happen — maybe it sounds a bit funny for me to say this, but you know I am very attached to guidance. So I think the bar is high, the bar is high for us to make any kind of change in the guidance.
Fábio, good morning, President, directors. I have a few questions here. Going back a bit to this issue of the exchange rate, the situation in the market in general, the government. We have heard a lot about 'speculative attack.' I would like an assessment from you: do you agree with this thesis that there is a speculative attack against the real? And in this context of turbulence, is there any chance of an intermediate Copom to raise interest rates? Another thing I wanted to understand better: President Roberto commented on this spillover from the exchange rate to interest rates. Is there any BC strategy to deal with this side effect of exchange intervention? And in the interventions, are you also aiming for a reduction in public debt, which has been a factor of uncertainty, the trajectory? So, are these sales of reais, dollars from reserves also aimed at that? I have one last question: do you agree with the reading of the QPC that there has been a recent worsening in the fiscal situation, and are there additional fiscal measures needed?
Well, about the speculative attack, I think we have the same opinion. We discussed a lot about this. I think it is possible to talk a little about this topic, and I will answer you. You asked a question based on what has been said, and I will answer what I say here at Copom and also when the Central Bank is occasionally called by the government to clarify such issues. I think it is not correct to try to treat the market as a monolithic block, as if it were one coordinated thing moving in a single direction. We just need to understand that the market generally works with opposing positions. For the market to exist, there must be someone buying and someone selling. So every time the price of an asset moves in some direction, you have winners and losers. So I think the idea of a coordinated speculative attack is not a good representation. I think we can explain how the movement is happening in the market today. I make a point of emphasizing that this is what I repeat in all meetings when we are called, because this interpretation is well understood and accepted in my interlocutions, whether with Minister Fernando Haddad, with Minister Simone Tebet, with Vice President Geraldo Alckmin, or with the President of the Republic, who agrees when I have this dialogue with him. I think sometimes there is a lot of noise from a communication perspective, and it is normal for this type of noise to happen, but I think it is important to clarify this view. At the end of the day, it is up to everyone on this side to try to do the best possible work to encourage that those asset prices that behave better, the better the economy and society are doing, present advantages for those who made that type of view. As for the fiscal question you asked, our standard answer is what really matters to us: we are analyzing how the market analyzes the fiscal issue and how that reflects in prices. But you asked specifically: 'How are you seeing it?' I will do the same and repeat what I have said in meetings, both internally and in meetings with other interlocutors, or even with the government. I think the issue of difficulties and problems of Brazilian public accounts has been addressed for some time in the literature, whether from an efficiency perspective, from a tax justice perspective, because of budget rigidity, or because of complex growth rules. So this issue has been around for some time. I understand that you all know, and the market and academia know that it is very difficult to present any type of fiscal program that will be a silver bullet to address all these problems in the short term or very short term. So I think it is always important, and I feel this in my conversations with President Lula and with Minister Haddad, that there is recognition first of the diagnosis that there are indeed fiscal problems to be addressed in the country. Second, that no program announced will be a silver bullet that solves these problems. The programs should be a demonstration of recognition of the problem and the diagnosis, and steps in the right direction. One more step in the right direction. These steps will always present the need for debate with society and Congress, which a democratic process demands. This often means these projects move at a speed that is not exactly the speed we would all like, but these are the pains of democracy. As I have said many times, I prefer these pains to any kind of false shortcut. That said, recognizing that no program will be sufficient alone to address the problem, it is also important to recognize, which I also feel in my dialogue with President Lula and Minister Haddad, that this is a continuous work, which must continue. Today, there is an effort by the government to try to get approval in Congress of what is there, in this dialogue necessary with society and Congress. So, on one hand, I am transmitting what my speech has been and how I see it, as well as how the Central Bank is called. It is not up to the Central Bank to make any type of orientation or suggestion to the government. The Central Bank is always called to transmit its view of what is happening with the assets in the market, what is causing that, and try to bring that view because the Central Bank is closest to speak. But that is what I have in my interlocutions. On the monetary policy side, monetary policy is always in a beauty contest. We are there much more betting on how people see and think who is the winner of the beauty contest, not who we think. What matters for monetary policy is how the market and prices react based on the interpretation they have of what is happening in fiscal policy. Just one quick point: regarding the question about whether selling reserves considers debt — no, it is never part of the debate when we discuss intervention policy. And the issue of spillover to interest rates, how to react to that side effect, and the question of whether you rule out an intermediate Copom — I think Gabriel answered that question earlier, saying that he understands that the guidance has value and intends to follow it, that the bar is very high. Regarding the spillover, what I meant is that sometimes there is a rush, a search for a hedge. So there is a perception of a change in risk parameters, and sometimes a company, an investor, or someone engaged in productive activity understands they need to hedge, either because of cash flow or future projections. When you intervene, the intervention must have two things: it cannot be too small so that it has no effect and you continue with market dysfunctions, liquidity dysfunctions, and it cannot be too large so that people perceive that instrument has lost its capacity to hedge. If people perceive it has lost its hedging capacity, they will look for another instrument that is a proxy and mirrors country risk, and they will hedge in that other instrument. That is the spillover. We do not act in the exchange rate looking at that. Obviously we talk to the Treasury and say, 'Look, we understand there is a problem here. Sometimes the dysfunction is in the pre-fixed rate or interest rates, sometimes the dysfunction is more in the exchange rate. More recently, it has even been shown that the dysfunction in the interest rate in terms of liquidity was even greater than the dysfunction in the exchange rate. But our task here is to look at the exchange rate, identify the flow, see the dysfunction, and act, always passing the clear message that we do not do this for the debt, nor for guaranteeing a price, nor with a monetary policy bias.
Thank you, Alex from Valor Econômico. Good morning. I wanted a direct answer from the future president, who is interim from Saturday. There is a rumor in the market that the Central Bank will hold an extraordinary meeting — it's not the only rumor, there is a lot of information out there. I want to ask you directly: are you considering holding an extraordinary Copom meeting? And a little about the logic: why do you think the world has not changed since last week's Copom meeting? Those following the market perceive that things have changed: the exchange rate has changed levels, the perception of fiscal risk is more serious than before. In a way, what you discussed in the last meeting is already old. Second question: about the exchange market intervention. I understand that the President spoke about attending to a demand for hedging from the real sector of the economy. But an instrument to meet hedging is not a swap. Why are you not considering acting via swap? Lastly, there is an interpretation in the market that when the Central Bank's exchange intervention is very large, it attracts and reinforces speculative positions by large international players. The Central Bank has lost count, but I think it's about 13 billion without counting the line auctions. Is the Central Bank not calling big players into this game to bet against the real? Thank you.
Let me speak. I could say that I would love to have another Copom meeting with Roberto; maybe that would seduce me to call it. But as I said to you, I think we took a clear, transparent step in the direction of putting the interest rate at a restrictive level with some certainty. Whether you have the wide spectrum of what the neutral rate is, we are walking in that direction. And as Roberto said about the guidance having a high bar. Regarding the exchange rate, I think the point you tried to touch is: maybe we are indeed in a phase of atypical flow, but maybe this atypical flow is a hedge. If this atypical flow is pure and simple hedging, why don't we intervene in swaps and instead do it in the spot? Because what we are seeing is that we have a larger outflow of dividends and also an outflow of resources — we are seeing an outflow of resources, including more recently from individuals in smaller volumes. This is not really a search for a hedge per se; it is a hedge that manifests through the physical outflow of foreign exchange. But that does not mean we will not act going forward with swaps. We always look at the demands, the flows, what is mapped in PTAX, what is physical outflow, and we choose the best instrument. We have freedom between instruments. At no point are we conveying the perception that we will only act in one instrument or another. We will analyze case by case. So far, the analysis was that it was important to act in the spot market because of the type of flow we were seeing. If this attracts more speculators — I don't like the word 'speculator'; I think Gabriel already spoke about that. I think the market is a set of prices that tries to reflect opinions, and not only from financial investors but from real-world investors, as I said, people doing hedging, people doing long-term projects. So we don't look at it in that sense. We are simply trying to see if that movement has any dysfunction, if there is a liquidity gap, if something happened in a period that already has a very atypical flow. This means there is no defense of a price level, but rather an interpretation at that moment that if the Central Bank does not act, the dysfunction could lead to a market reaction that could have been countered by intervention. That is what reserves exist for — again, always saying it is not for doing monetary policy, nor for managing public debt. It is for combating market dysfunction.
Timóteo from Exame. Good morning, directors. I wanted to understand from you: is this dysfunction or this demand above what you expected? Does it stem from a crisis of confidence in the fiscal anchor of Brazil? Is the macroeconomic tripod with its fiscal anchor somehow limping? And besides this above-normal demand, is there a market distrust or is the market's antipetism exaggerated?
About the fiscal issue, I think it is a bit of what I answered before. At the end of the day, what matters is the reading the market has of the behavior for the formation of asset prices. Also regarding what you called 'one side or the other,' I think my answer, when I said that the market works by opposing positions, i.e., for every buyer there must be a seller, and then you will always have someone winning and someone losing as the price moves, also goes in the direction of answering what you were commenting. I think what is important about the fiscal issue is a bit of what I was answering to Fábio: this is a process where debates with society and Congress sometimes truly demand a time that is natural and welcome in the democratic process. But we know that in the financial market, things also impose themselves. You are forced to move at that speed. I think what is very important, and I am simply transmitting my reading based on the fact that I am in the position I am today and am occasionally called to have dialogues and clarify communication. The clearer the communication of all of us here in the government is, in the sense that there is indeed a continuous process that must be done to resolve the issues involving this topic. Just one point on the exchange rate: I think our actions in recent times show exactly that our action is not, let's say, in the face of a perception of worsening risk premium, but rather a perception of flow dysfunction. So much so that we had several movements of worsening risk perception in recent times where there was no action, including at times with strong complaints from many. So I think the Central Bank's historical action shows that our function is not to combat a worse risk premium perception, but rather to understand why we are seeing dysfunction, what its characteristics are, and if it is a case of dysfunction where providing liquidity makes the process more organized. The intention is not to change the direction, but to organize the process, avoiding dysfunction in exchange trading.
Hello everyone, good morning. I have two questions. The first is very direct: we entered the year with the dollar below five, then it went to the 5.80 range, and until the end of the year, until early November, there was an expectation that it would retreat and close closer to five. Today we are experiencing it at 6.26, 6.20. So, I want to know: is this level in line with the fundamentals of the Brazilian economy today, or is it exaggerated? My second question is a bit broader: the scenario we have today is that the President criticizes the Central Bank's action for raising interest rates, the Finance Minister's image has been scratched due to the entire conduct of the fiscal package, Congress bargains to approve measures of interest to society and the country, as you yourselves defend on the fiscal side, and the Central Bank ended up alone, hanging on the interest rate in this scenario. Is there no longer control of the narrative in the government and the economic team, and the market is at the mercy of its own narrative, which can be different every day? In this context, I would like to know from you: has monetary policy lost its effectiveness? Because you talk a lot about mitigating factors, but considering the data presented here, which show growth very anchored in the services sector, where traditionally the effect of monetary policy is already impaired, I want you to explain a little more about the effectiveness of monetary policy. Does the Central Bank indeed have an instrument capable of acting in this current moment, so confused and full of opinions?
Well, I will start and then pass to Gabriel. I think we have to think about what our north is in the meetings: what can the Central Bank do to convey credibility in terms of achieving our main goals? That is what we have been doing. So we understood it was important to be united, communicating well, working well together, making a smooth transition process. I don't think there is any problem in the Central Bank's performance. I think the Central Bank has done everything it can do, understanding the market dysfunctions that exist and this period we are going through, where there is some questioning and uncertainty regarding fiscal policy. The Central Bank is doing what it can. There is a very common language among central bankers: 'the only game in town.' You are the only one, in fact, who is fighting for credibility. I think it is not up to the Central Bank to make an assessment of that, but rather to think about how it can act to improve credibility as much as possible. You sometimes have a perception of lack of credibility in the fiscal area. We obviously try to make a very attentive move here to gain as much monetary credibility as possible, so that in terms of future perception, credibility improves. But obviously the Central Bank cannot act alone. So I think that is an important point, one we have been saying. I think it is not up to us to make an assessment of the fiscal, because again, as Gabriel mentioned, what matters is how the perception of the fiscal impacts macroeconomic variables that are important for our day-to-day. We may have one perception of the fiscal, but if the market has a very different perception and the impact of that perception acts on our reaction function in a distinct way, that is how we have to interpret it. That is how our model, our reaction function, works. I will pass to Gabriel to complement.
I will not give two brief answers; maybe even Diogo wants to add something. Yes, the Central Bank has all the necessary tools to pursue and achieve the target. Yes, both from a technical perspective of monetary policy and from an institutional perspective, because you commented on other issues. The Central Bank has full autonomy, it has the full confidence of the President of the Republic. You mentioned some comments; the President allowed full autonomy in the choice of directors and in this entire process. And Roberto was very delicate and kind here when talking about how the last two meetings were. All directors gave full support for us to take the lead in the decision process of what happened in this Copom, including the guidance. So often, depending on who you like more — if you like Roberto or me more, you will think it was one's fault or the other's. And if you like that the decision was made or not, you will think it was one's fault or the other's. Roberto was very clear in the meeting that he understood that this was a meeting where responsibility should be left with me, that my voice should be distinct. I thank Roberto and all the directors. It is a privilege to have this body of directors and to be able to share, listen, and build together. But this was a decision taken already in a transition process from Roberto, allowing us to be at the forefront of this meeting along with all the directors. I don't know if Diogo could speak a little about the channels. First, reinforcing Gabriel's point that...
The BC is fully equipped, it has autonomy, instruments, and objective. So from that point I don't see any doubt regarding the BC's capacity to act. Regarding the loss of power, the point we highlighted in the minutes are the mitigating elements. So the fact that you have a contractionary monetary policy and stronger activity... it is not necessarily loss of power. You have many other things happening at the same time that can lead to this reduction in the impact of monetary policy on activity. In the minutes, we highlighted two themes that were, as we put, mitigating elements: the fiscal impulse and the credit impulse could be reducing this impact. So you have one side pulling activity down, you have other sides mitigating these effects. You lose efficacy? You calibrate your instrument to take inflation to the target, which is our objective. So we continue to have appropriate instruments to take inflation to the target.
Good morning, I have two questions. The first: given the size of the exchange rate shock we're seeing, the depreciation of the Real, does the BC consider using the inflation band to accommodate part of this shock in the future? The second question: despite market pricing after the COPOM decision, two large banks have already revised down their IPCA projection for 2026, also increasing the Selic projection. In your assessment, is this already a reflection of COPOM and does it mean or could indicate a kind of stopping the bleeding of expectations, the de-anchoring we were seeing? Thank you.
First, as I said, we believe we have the tools, monetary policy works, and in a global inflation crisis in various parts of the world, it was shown that monetary policy worked and works. So it doesn't mean there aren't mitigating elements as described. Another thing: our target is always the center, we aim at the center of the target. So there is no conversation in any COPOM meeting that uses the word 'accommodate' for whatever reason. Our mission is to lead to the center of the target, analyzing the best way to do this with credibility and generating the least cost to society possible. I don't know if you want to say something. You spoke little. Today is our favorite. The next question is for Diogo. No, Alex asks a difficult question for Diogo regarding expectations, please. I think that in your own question, in the second half, it answers itself, it already addresses that. That is, the reaction is happening because the central bank took this clear and transparent step that it will pursue the target and will seek the necessary interest rate at the restrictive level for as long as necessary to achieve the target. Director Otávio, who also needs to be honored, who is also leaving, he gets angry, he makes fun of me when I say tergiversation. The Central Bank left no room for tergiversation, and homage to Otávio.
