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Copom Meets Tomorrow To Decide On The Selic. Market Already Priced In A Cut. Inflation Within The Target And Pace Of Selic Cuts In Focus.
The market expects the Copom to reduce the Selic rate by 0.50 percentage points tomorrow. The uncertainty now is about the future pace of cuts in interest rates. A cut of 0.50 percentage points is already priced into the market, following the pace of monetary easing over the last three meetings. Consequently, the basic interest rate will drop from 12.25% to 11.75% per year. If confirmed, the Selic will return to the same level it was at in March 2022. Over these last 21 months, the Selic’s journey has been eventful: the monetary authority raised interest rates by another 2 percentage points, keeping it at 13.75% for a year. The question now is how long the Central Bank should maintain this pace of cuts. Last week, President Roberto Campos Neto warned the more optimistic that the monetary policy game is not yet won, and there are uncertainties in the environment. He also conveyed the message that the Central Bank may reassess the pace of monetary easing. However, he emphasized that he still sees room for cuts of 0.50 percentage points, but reminds that this applies ‘always two meetings ahead.’
In January, the Selic is expected to be reduced to 11.25%, indicating the continuation of monetary easing by the Monetary Policy Committee. The market expects the Central Bank to slow the pace of Selic cuts due to two main factors. The first factor is the growth of economic activity above expectations, signaling a clearer slowdown for the Brazilian economy. The second factor is the fiscal risk that has returned to the radar of the market and the Central Bank, causing uncertainties regarding compliance with the fiscal target. The issue of fiscal risk becomes a warning factor for the monetary policy adopted by the Copom in the coming months. ‘If I had to choose one word to define 2024, it would be discipline permeating prices as the market understands how seriously the government will act in meeting the fiscal target throughout the first half of the year,’ says Roberto Simioni, Chief Economist at Blue3 Investimentos.
Copom Maintains The Basic Interest Rate At 2.00% Per Year
The Copom, Monetary Policy Committee of the Central Bank, decided this Wednesday, unanimously, to maintain the Selic rate at 2.00% per year. This is the lowest rate in the Central Bank’s historical series, which began in 1986. The decision was expected by the market, which projects that the rate will remain at this level until the end of the year.
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According to the note released by the Copom, the interest rate cut to such low levels aims to stimulate the Brazilian economy, which suffers the impacts of the coronavirus pandemic. The monetary easing seeks to encourage consumption and investments, helping to boost the Gross Domestic Product (GDP) of the country.
The president of the Central Bank, Roberto Campos Neto, highlighted that maintaining the basic interest rate is aligned with the inflation target set by the Committee. The goal is to keep the IPCA within the target, which is 4% for this year.
Moreover, the Copom emphasized that the pace of Selic cuts may be reassessed in the future, depending on market behavior and the international scenario. The drop in oil prices and the fiscal risk are also factors that influence the Committee’s decisions.
The diffusion indexes and economic figures from XP Economics show that there are positive expectations for the Brazilian economy, despite the challenges faced. The actions of the Federal Reserve and the strategies of Warren Investimentos also impact the national economic scenario.
In this context, the Copom remains attentive to the domestic and international scenarios, seeking the best strategies to maintain the country’s economic stability. The next Committee meeting is scheduled for August, when new decisions about the basic interest rate will be made.
Source: MoneyTimes
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