13/12/2023 – 18:44
At the last meeting of 2023, the Monetary Policy Committee (Copom) decided to lower the Selic to 11.75% per year. It is the lowest level of the index since May 2022. At the time, the basic interest rate of the Brazilian economy began to increasing trajectoryreaching 13.75% per year Only in August of this year did the 0.5% drop begin with each new debate.
+ Genial/Quaest: 72% of the market expects Copom to reduce Selic by 0.5pp, to 11.75%, in December
In the statement, the committee stated that the external environment remains volatile and appears to be less adverse than at the previous meeting, marked by the cooling of longer-term interest rates in the United States. The text also informs that, maintaining the scenario, the committee members foresee a reduction of the same magnitude in the next meetings.
In the November minutes, when the level was at 12.25%, the board of directors of the Central Bank (BC) emphasized the issue of inflation as essential for the decision to lower the Selic. “Consumer inflation follows the expected disinflation trajectory, with a benign composition, showing a slowdown in both services inflation and core inflation,” the document said. The index has always been a reason given by Roberto Campos Neto, president of the BC, when criticized about high interest rates in the country.
November's Broad Consumer Price Index (IPCA) also brought a favorable environment for interest rates to fall, with an accumulated 4.04% – which exceeds the BC's target of 3.25%, but remains within the tolerance range, with a ceiling of 1.5 percentage points. Furthermore, what favored the fall so pressured by the current government?
The fall in the Selic rate throughout the year is the result of a set of factors, according to André Roncaglia, professor at the Federal University of São Paulo (Unifesp). The first of these is the contractionary monetary policy since 2021, which fulfilled the role of keeping the exchange rate well-behaved; with the fall in the exchange rate throughout this year it also took a lot of weight off prices, the pass-through of international energy and food prices.
According to the expert, this is a very important variable, as there was an advanced process of disinflation. He explains that it continued systematically and this helps to understand the combined effect of both this exchange rate drop and the reduction in international energy and food prices.
“These two elements are, for me, the fundamental things to understand this process of fall in the Selic, which, as it reduced food inflation, energy inflation, partially accommodating even the tax increase on fuels. and also electrical energy, the effect was quite reasonable”, reinforces Roncaglia.
He also says that, from the point of view of services, the country had a long-lasting process of a contractionary monetary policy, which evidently helped to somewhat reduce the impact of service inflation. “Service inflation was falling, when we look at the cores, and this also helps a lot to explain this more benign scenario that the Central Bank saw for the behavior of inflation, which allowed this continued drop of 0.5% per meeting ”.
“It is right to say, finally, that the more benign scenario of a sustained drop in inflation, or a slowdown in inflation, I think it is more correct to say, was justifying this gradual drop. The scenario now for 2024 tends to raise another debate that will be when it can fall, to what point, to what level the Selic can fall and at what pace”, he concludes.
FED maintained interest rates in the USA
In the so-called Super Wednesday, the Federal Open Market Committee (Fomc) of the Federal Reserve (Fed, the North American central bank) maintained the Fed Funds rate at 5.25% to 5.50% per year . The unanimous decision is in line with what was expected by the financial market.
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