05/08/2024 – 6:30
The Copom (Monetary Policy Committee) of the Central Bank announces this Wednesday, 8th, its decision on the basic interest rate, which is currently 10.75% per year. There is a consensus in the market that the Selic should suffer a new cut, but in recent days analysts have come to see the likelihood of a smaller cut in interest rates, of just 0.25 percentage points, as greater.
The Selic reduction cycle began in August last year and, since then, 6 consecutive cuts of 0.50 percentage points have been made. The BC’s decision will be announced at 6:30 pm.
The BC will close its monetary policy meeting in a scenario of renewed uncertainty that led the BC president, Roberto Campos Neto, to open the door in April for the Copom to reduce the pace of interest rate cuts, despite its most recent future guidance indicating maintaining the pace of 0.50 points.
The weekly survey carried out by the BC through the Focus Bulletin, which captures the market’s perception of economic indicators, showed that economists raised their estimate for the level of interest rates at the end of May to 10.50%, interrupting a sequence of 38 weeks in 10.25%. In other words, most projections started to include a smaller Selic cut, of just 0.25 percentage points.
In the market, there remains a majority expectation that the BC leadership will opt for a smaller rate reduction, of 0.25 percentage points, after a cycle of six consecutive cuts of 0.50 pp, which began in August last year. According to the Projeções Broadcast survey, the reduction in pace is the focus of 25 of the 45 houses consulted (55%). Two weeks earlier, the predominant assessment was a new half-point cut in the basic interest rate – 20 institutions remain in this position.
“The scenario for a cut of 50 is possible, but it does not seem likely. The Committee committed to this cut and this is the best argument for 0.5% tomorrow. However, Mexico is expected to maintain interest rates at 11% on Thursday and the exchange rate situation is uncomfortable since the market pushed forward the interest rate cut in the US,” said the director of consultancy firm Wagner Investimentos, José Faria Júnior, in comment sent to customers.
Among the factors to be taken into consideration by the Copom for the decision is a more adverse scenario in Brazil, with fiscal uncertainties and floods in Rio Grande do Sul, as well as a complicated scenario in the USA, which has postponed the drop in interest rates for there due to persistent inflation.
Uncertainties on the radar
Rodrigo Azevedo, economist, financial planner and founder of GT Capital, projects a fall scenario of 0.50% in May and 0.25% in June. “The negative scenario after the last Copom ended up validating the decision to change the future guidance (forward guidance) from the plural to the singular, giving more freedom for the next steps of monetary policy from June onwards”, he says.
Elcio Cardozo, capital market specialist and partner at Matriz Capital, highlights the market’s greater uncertainty regarding the cut at this meeting, contrasting with the consensus in previous meetings. “Most of the market is confident in a lower magnitude cut, that is, 25 bps, for this meeting. This expectation of smaller cuts stems from a series of data that were released by the United States and also due to internal factors,” he says.
Despite the majority’s expectation of a smaller cut, he defends the possibility of a 0.50 point cut, based on controlled inflation and the high level of the Selic rate. “Our inflation is quite controlled, with consecutive data released below consensus and the current level of real interest rates is still very high, with there being a path for further cuts in the interest rate”, he says.
For Ana Paula Carvalho, financial planner and partner at AVG Capital, in addition to the uncertainties in the external scenario, the labor market data here and the composition of inflation suggest greater caution in monetary policy, in addition to a very worrying fiscal scenario.
“Faced with a scenario in which interest rates tend to fall less than expected at the beginning of the year, fixed income investments have still proven to be attractive. For the investor with a more daring profile, given a strong opening in future interest curves, good opportunities have emerged in fixed-rate assets and in securities that pay IPCA + interest with longer vertices. For investors with a conservative profile, post-fixed securities with maturities of up to two years continue to be good options with preference for exempt assets”, he assesses.
The median expectation in the Focus bulletin for the Selic level at the end of this year rose to 9.63%, from 9.50% in the previous week. For 2025, the projection remains at 9%.
Regarding inflation, the market forecast for the IPCA rose to 3.73% in 2024 and to 3.364% in 2025. The center of the official target for inflation is 3%, with a tolerance margin of 1.5 points percentage more or less.
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