06/19/2024 – 6:00
The Monetary Policy Council (Copom) of the Central Bank (BC) releases this Wednesday, 19th, its decision on the economy’s basic interest rate, the Selic, after two days of deliberations among members.
Selic is currently at 10.5% per year, and the market expectation is that the decision will be to maintain this level, despite criticism from the government pushing for more cuts. The cut cycle began in July 2023, after almost a year at 13.75%, and reached the current level at the last meeting in May.
+ Lula attacks Campos Neto, criticizes exemptions and says that nothing is ruled out in the fiscal adjustment
What has changed since May
Experts who previously saw a high chance of the cycle of cuts continuing until the end of the year are now betting on a pause in reductions or even the end of cuts for this year, following new projections for inflation and uncertainty in the external scenario, particularly in the economy. from United States.
“From there [maio] So far, implicit inflation for this year has risen from 4.0% to 4.35%, long-term fixed interest rates have left the neighborhood of 11.5% per year and are close to 12.1% per year, and the dollar, which was around R$5.08, is at R$5.37. Therefore, the market expects the rate to remain at the level of 10.5% per year, by unanimous decision, ending the downward cycle for now”, points out Itaú BBA in a report.
Also supported by inflation data, UBS BB does not expect changes in the Selic this time. “Following the deterioration of inflation expectations and financial conditions over the last few weeks, we believe that the Copom will pause its easing cycle.”
But the bank sees the possibility of changes at the last meeting of the year, in December. “We now expect that the BCB will resume cuts only in December, along with the first cut by the Fed [banco central dos Estados Unidos]. (…) Our expectation of the rate remains at 8.5% for the end of 2024”.
Concern about the Brazilian fiscal scenario also weighs heavily on the domestic environment. “The inspector is very concerned and we can see this in the statements of Campos Neto himself”, says Nicolas Gass, specialist and partner at GT Capital.
Gass reinforces the expectation of maintaining the rate at 10.50%. “The forecast we had of closing the year here in Brazil at a terminal rate of 9% or 9.5% depended a lot on the United States reducing their rate from May onwards”, explained the analyst, highlighting that the current scenario is very different and justifies maintaining interest rates at the current level.
In its most recent decision on interest rates, the American central bank kept its rate in the range of 5.25%-5.50% per year.
Keeping an eye on the votes
The market’s attention is also focused on the Copom’s decision score at this Wednesday’s meeting.
“The divided score of the last meeting was, together with the change in fiscal target for 2025 and 2026, one of the triggers for the worsening of fiscal perception and the increase in the unanchoring of expectations in recent weeks. Therefore, the best scenario would be a unanimous score, regardless of the decision”, says Helena Veronese, chief economist at B.Side Investimentos.
If the decision is divided again, as in the previous meeting, the expectation is for new upward pressure on the dollar, due to fears that, with the departure of Roberto Campos Neto from the presidency of the BC at the end of 2024, the institution will become become more tolerant of inflation.
“Fiscal uncertainties and uncertainties in relation to the BC are greatly damaging the prices of financial assets. In fact, the Brazilian currency is devaluing more than the Argentine currency itself, and the situation of the Argentine economy is infinitely worse than the Brazilian one”, pointed out Paulo Gala, chief economist at Banco Master, in a comment sent to clients.
“As long as there is no light on the fiscal equation, on how the government will comply with the framework without just putting pressure on tax collection, and without any light on what the new BC will be, who will be the president and what the line will be Then the market continues with this uncertainty”, says Paulo Gala.
Another point of attention is the signaling that the BC will give in the statement.
“Will they signal an end to the cycle, or just a pause? On our side, we understand that the word pause should appear, precisely so that the doors for new cuts this year do not close. But it is necessary to remember that the market is pricing in an interest rate cut in the United States from September onwards. The pace of these cuts and the signals given by the Fed could influence monetary policy decisions at the end of this year, both in Brazil and in other emerging markets”, says Veronese.
For Marcelo Bolzan, specialist and partner at The Hill Capital, the Copom statement should adopt a more hawkish tone, that is, tougher. “I believe that the statement will have a hawkish tone that the moment requires, due to the worsening of the balance of risks”, he stated, emphasizing that the Copom should maintain a stance of leaving the door open for future interest cuts, depending on subsequent economic data. .
Government pressure
On Tuesday, the 18th, President Luiz Inácio Lula da Silva once again attacked Roberto Campos Neto, president of the BC, about Selic at a higher level. In an interview with Rádio CBN, Lula accused Campos Neto of working “to harm the country”.
According to the president, the behavior of the monetary authority is the only “misfitting thing” in Brazil at the moment and the interest rate cannot be “prohibitive” for productive sectors. “The president of the Central Bank does not demonstrate any capacity for autonomy, he has a political side and, in my opinion, he works much more to harm the country than to help,” said Lula.
Since the beginning of his term, Lula has criticized Selic, accompanied in his criticism by other members of the government, such as vice-president Geraldo Alckmin and Finance Minister Fernando Haddad.
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