Atentamente

I’m thankful to X for inviting me to this blog. However, X, if you say something stupid, as usual, you won’t be spared. But on my first post I just want to point out the naivety of FK.

Things are not like you think, FK. When I was at the BC, sunk down the bureaucratic duties, I didn’t have time to think so much about the monetary policy. When COPOM meeting was close, I had a quick talk with a DEPEP guy I trusted to check the risks involved. Then I thought what would be the best policy for the country, tried not to get my hands tied, remembered always that I could change my mind and change everything in the next month.

I read a research report yesterday concluding that Tombini said “atentamente” to signal he will raise 50, since the curve was already pricing 25 and he does not want to disappoint the market. (If he would raise only 25 he shouldn’t have said a word). That is simply wrong. But Tombini definetely didn’t think that, he probably did not know what the curve was pricing on Friday, and the only thing he remembered was that he had signaled he would raise in May. Since he changed his mind to raise interest tomorrow, he decided to signal that. But it could be both 25 or 50. Now that the curve is pricing 50, it is costly for him to raise only 25, but he didn’t think of it before.