Monetary authority says it chose not to communicate the magnitude of the next adjustments in the Selic rate
The minutes of the last Copom (Monetary Policy Committee) meeting advocated an increase “gradual” of the basic rate, the Selic. It also detected a worsening in the perception of financial agents with the government’s fiscal policy Luiz Inácio Lula da Silva (PT).
The document was published this Tuesday (24.Sep.2024). Here is the full (PDF — 326 kB).
The meeting decided to increase the Selic rate from 10.5% to 10.75% on Wednesday (September 18, 2024). According to the statement, the BC “preferred a communication that reinforces the importance of monitoring scenarios over time, without providing any future indication of its next steps”.
The monetary authority stated that it has a firm commitment to converge inflation to the target.
“The pace of future adjustments in the interest rate and the total magnitude of the cycle now initiated will be dictated by the firm commitment to convergence of inflation to the target and will depend on the evolution of inflation dynamics“, he said.
FISCAL POLICY
The BC said consumption and aggregate demand in the economy should have “support” with the job market “robust”, fiscal policy “expansionist” and the vigor in granting credit to families.
The minutes said financial agents had a more recent perception of growth in public spending and the sustainability of the fiscal framework, which has been in force since August 2023. “Along with other factors, it has had significant impacts on asset prices and expectations”, he defended.
The monetary authority defended a fiscal policy “credible, based on predictable rules and transparency in its results”. He also stated that “pursuit of fiscal strategies that signal and reinforce the commitment to the fiscal framework in the coming years are important elements for anchoring inflation expectations”.
For the committee, the “fading away” in the effort of structural reforms and fiscal discipline have the potential to raise the economy’s neutral interest rate.
The minutes said Copom expects a slowdown in the pace of growth in public spending over time. It also stated that the scope for fiscal policy action post-COVID-19 pandemic has become “more limited with rising public debt and concerns about fiscal sustainability”.
ECONOMIC ACTIVITY
The Central Bank stated that the domestic labor market has been more dynamic than expected. This fact brings the output gap to the field positive. The output gap is the difference between actual GDP (Gross Domestic Product) and potential GDP. In practice, it is when the economy consumes more than its capacity to produce, which causes greater demand and less supply. The result of this equation is: more inflation.
The pace of growth in economic activity makes “more challenging“the process of convergence of inflation to the 3% target. He stated, however, that there is no “evidence“even though wage pressures are impacting prices. He said that real wage growth”will eventually have an impact on prices”.
SELIC
It was the 1st since the BC raised the basic interest rate since August 2022 –2 years and 1 month ago. The decision of the directors of the body was unanimous.
The result followed the expectations of financial market agents. The Selic is the basic interest rate of the Brazilian economy. It directly influences the rates that will be charged on loans, financing and investments. In the financial market, it impacts the return on investments.
Read the indicator history below:
INTEREST IN THE WORLD
Brazil ranks 2nd in the ranking of the highest real interest rates in the world with the decision this Wednesday (18.Sep). The survey by economist Jason Vieira shows that the rate “ex-ante”, the one projected for the next 12 months, will be 7.33%. The country is behind only Russia, with 9.05%.
Real interest rates are calculated taking into account inflation in each country. Read the report latest from MoneYou (PDF — 269 kB).
GALIPOLO PRESIDENT
The Copom meeting in September was the first with the official nomination of Gabriel Galípolo to lead the BC. He is currently the authority’s director of Monetary Policy.
Galípolo raised his tone regarding the conduct of interest rates after the July meeting. He reinforced the positioning of the minutes and defended an increase in the basic rate if necessary. The statements reinforced market expectations for this Wednesday (September 18).
“We are willing to live with a more restrictive rate for longer, however, I was left with the feeling that this phrase […] was read as taking the possibility of discharge off the table. And that is not the reality of the Copom’s diagnosis. Discharge is on the table and we want to see how this will unfold.”, declared the director on August 12th.
UNANIMOUS SCOREBOARD
This is the third consecutive Copom meeting with a unanimous vote. There was a split in May. The four nominees for the Central Bank board by Lula voted for a reduction of half a percentage point. The five nominees put forward by the former president Jair Bolsonaro (PL) voted for a 0.25 percentage point drop – which prevailed.
The division provoked a negative reaction among economic agents. At the following meeting, in June, all directors voted to maintain the Selic rate at 10.50% per year.
The split meeting, in May, was the only one in which Galípolo and Campos Neto did not have equal votes.
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