05/08/2024 – 19:08
In the second paragraph of the previously published note there was the erroneous information that basic interest rates fell from 10.75% to 10.25%. In fact, the Selic rate was reduced from 10.75% to 10.50%. The corrected and expanded version follows:
Confirming the abandonment of the indication given at the last meeting, the Monetary Policy Committee (Copom) of the Central Bank reduced the Selic rate by 0.25 percentage points (pp.) this Wednesday, 8th, interrupting a cycle of six consecutive cuts of 0.50pp.
The economy’s basic interest rates fell from 10.75% to 10.50% per year, in a split decision by the nine members of the collegiate – including the four appointed by President Luiz Inácio Lula da Silva, who continues to complain about the level of interest rates in the country There were 5 votes to 4.
The oldest members of the Copom voted for a reduction of 0.25 percentage points: the president of the BC, Roberto Campos Neto, Carolina de Assis Barros, Diogo Abry Guillen, Otávio Ribeiro Damaso and Renato Dias de Brito Gomes. Those appointed by the Lula government voted for a reduction of 0.50 pp: Ailton de Aquino, Gabriel Galípolo, Paulo Picchetti and Rodrigo Teixeira.
The reduction in the pace of cuts – despite the monetary authority’s indication that it would maintain the 0.50 pp reduction. at this meeting – it was already dividing the market. There was a slight majority expectation that the BC leadership would opt for a smaller rate reduction, of 0.25 percentage points, interrupting the 0.50 pp cycle. started in August last year.
According to research by the Broadcast Projections, decreasing the pace to 0.25 pp. it was the bet of 25 of the 45 houses consulted (55%). Two weeks before this meeting, the predominant assessment was another half-point cut in the basic interest rate – 20 institutions remained in this position.
When justifying this Wednesday’s decision, the BC said it understands that this decision is compatible with the strategy of inflation convergence around the target over the relevant horizon, which includes the year 2025. “Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing fluctuations in the level of economic activity and promoting full employment”, repeated the Copom.
Inflation
The BC’s official projections for inflation rose, according to the Copom statement. In the reference scenario, which uses exchange rates varying according to Purchasing Power Parity (PPP) and interest rates from the Focus Market Report, the BC changed the 2024 IPCA projection from 3.5% to 3.8%. For 2025, the update was from 3.2% to 3.3%.
Also considering the reference scenario, the municipality updated the projections for administered prices in Copom. In 2024, the estimate went from 4.4% to 4.8%. In 2024, it varied from 3.9% to 4.0%.
In this scenario, the BC also considers that the price of oil should approximately follow the future curve for the next six months and begin to increase by 2% per year thereafter. It also adopts the hypothesis of a “green” tariff flag in December 2024 and 2025.
In the market, inflation expectations from this year’s Focus Bulletin varied downwards between the Committee’s two meetings (from 3.79% to 3.72%) while, for 2025, the main focus of monetary policy, there was an increase – from 3 .50% to 3.64%. Both Copom and market projections remain above the continuous target of 3.00%. For longer horizons, the Focus also shows undocking.
Real interest
Even with the new low, the country remains in second place in the world ranking of real interest rates (discounting inflation ahead). According to a survey by the MoneyYou website with 40 economies, Brazil now has a real interest rate of 6.54%, just behind Russia (7.79%). In third place comes Mexico (5.88%).
The average of the 40 economies surveyed is 0.12%. Until the March Copom, the Brazilian neutral interest rate, which neither stimulates nor contracts the economy and, consequently, does not accelerate or alleviate Brazilian inflation, was estimated by the BC at 4.5%, although the market already considered a higher rate, of 5.0%.
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