BC signaled that the next meeting would be the last with a 0.5 pp cut; the review of the fiscal target and interest rates in the US could change the decision
A possible slowdown in cuts in the Selic, the basic interest rate, divides financial market projections. Of the 11 analysts and financial institutions consulted by Power3606 say that the BC (Central Bank) will end the cycle of reductions of half a pp (percentage point) in the level from Wednesday (May 8, 2024). This way, the drop would be 0.25 pp and the indicator would be 10.50% per year.
The monetary authority had indicated in March that the meeting on Wednesday (May 8) would be the last with a drop of 0.50 pp. Therefore, the Selic was expected to remain at 10.25%. The intensity of the cuts would only decrease from June onwards.
However, 2 central factors can anticipate the reduction:
Read below what each company consulted by Poder360 projects:
Institutions that project a reduction in the level of cuts from May 8th cite national and international uncertainties as justification for the estimate.
“The inflation outlook is more challenging due to international and local reasons. Therefore, it seems reasonable to expect a more gradual conduct of monetary easing.”says one report of XP published on Friday (3.Apr).
They also mention recent speeches by the Central Bank. The authority’s president, Roberto Campos Neto, has been critical of the government’s change in fiscal targets.
Lula’s economic team proposed having a primary surplus of 0.5% of GDP (Gross Domestic Product) in 2025. But it later changed to a zero deficit in the period – the same objective as in 2024.
In practice, the government delayed a result that would have been more favorable for the balance of public accounts.
Campos Neto has argued that monetary policy goes hand in hand with fiscal policy. The Economist said on change day of the goal that “the ideal is not to change but to ensure that there will be every possible effort to achieve it”.
Monetary and fiscal policy are different. Understand below:
- monetary – control of the money supply and interest rates by the Central Bank to regulate economic activity;
- Supervisor – government decisions about spending and tax revenue to influence the economy.
“We made a correction [monetária] big, but if we needed to do, let’s say, a fiscal correction […] If we lose the fiscal anchor, monetary work becomes more difficult to do”, declared the president of the BC on April 29th.
The Focus Bulletin projects that the Selic will continue at a pace of half a percentage point in May. The most recent report from the Central Bank, however, provided financial market perspectives on April 26th.
SELIC
Selic is the basic interest rate for the Brazilian economy. It directly influences the rates on loans, financing and investments. In the financial market, it impacts the performance of applications.
O Copom (Monetary Policy Committee) unanimously reduced the base interest rate from 11.25% per year to 10.75% per year on March 20th. The rate reached the lowest level in 2 years, when it was at the same level. It was the 6th cut in a row.
Read Selic’s history below:
Before the cycle of reductions, the Selic spent 12 months at 13.75% per year. The reason for maintaining the rate at higher levels is to control inflation. More expensive credit slows consumption and production. As a consequence, prices tend not to increase as quickly.
The monetary authority’s reluctance to immediately cut interest rates was criticized by members and allies of the Lula government.
The PT member and his supporters complain of rate levels even with gradual cuts. They say there is no need for more inflation control. If there is a smaller cut, as part of the market expects, the bombings should intensify.
As shown by the Power360for the national president of the PT, federal deputy Gleisi Hoffmann (PR), if the reduction is 0.25 pp, it will show the “political action” by Campos Neto. The federal deputy Lindbergh Farias (PT-RJ) said that the economist tries “disrupt the government”.
Since taking office in Planalto in 2023, Lula has complained about high interest rates. The criticism continued even after the Selic cuts began. The president said on March 11 that Campos Neto contributes to a “monetary delay” in Brazil.
“There is no explanation for the Selic interest rate to be 11.25%. There is no economic explanation, no inflationary explanation. There is nothing other than the stubbornness of the president of the Central Bank in maintaining this interest rate”declared Lula in an interview with SBT.
The PT member argues that the country needs lower interest rates for the economy to move more intensely.
The economic team uses the slowdown in inflation to justify more intense cuts. The indicator ended March up 0.16%. It is measured by the IPCA (Broad National Consumer Price Index). There was a slowdown in relation to February, when the price increase was 0.83%. In March 2023, the indicator changed by 0.71%. Haddad celebrated the result.
The inflation rate is used to measure price changes. In other words, how much the money is actually worth. In short, a product that cost R$100 now costs R$110 if broad inflation varies by 10% upwards.
O Power360 There is a report that explains in detail what inflation is. Read here.
Watch (5min11s):
#Selic #projection #divides #market #rate