The last meeting of the Monetary Policy Committee (Copom) of 2021 begins this Tuesday (7). The result is already known by eleven among ten market specialists. The Selic reference rate will be raised by 1.5 percentage points and will rise from the current 7.75% per year to 9.25% per year. With that, the Central Bank (BC) will have created one of the biggest turnarounds in Brazilian monetary policy in recent history. At the beginning of the year, the Selic was at 2%.
The issue is not the outcome of the meeting, which is already more than known – and, if there is a surprise, it will provoke cataclysmic shock waves in the market. What really matters is what will happen after 2022.
On Monday (6), as it happens in every beginning of the week, the BC released the Focus Report, with the projections of the specialists of the banks. The expectation for the Selic in December 2022 is 11.25%. The prognosis for the end of 2023 stands at 8.00%, down from 6.75% of what was estimated three months ago. In other words, experts expect the increase in the Selic to be more accentuated and extend for much longer than previously expected.
Calibrating interest rates in order to warm or cool the temperature of the economy is what the BC is responsible for trying to keep inflation within the targets. However, the market is waiting for a slowdown in the economy even before the BC raises interest rates. In other words, it won’t be necessary to further cool an economy that is gradually losing its rhythm.
In other words, monetary policy is “backward”. Due to the pandemic, the BC kept interest rates at 2% per annum for several months. This derailed inflation expectations. The rise in prices was aggravated by commodities, oil and water shortages, which have been pushing food prices up. Interest rates should have risen longer and more gradually, rather than this spurt during 2021.
If we look only at inflation rates, which should remain above the target ceiling in 2022, the Copom should continue its unpleasant task of raising interest rates and tightening monetary policy. However, if we look only at the expected behavior of the real economy, the BC could even loosen monetary policy to contain the GDP deceleration, which dropped -0.1% in the third quarter. A weak economy tends to draw energy from inflation rates. Thus, economic activity will have slowed down before the interest rate hike takes effect.
Conclusion: for doing later, BC will have to do more. It will have to keep interest rates higher and for longer, reducing economic activity beyond what would have been necessary if the Copom had not missed the time to get the economy right.
See too
+ Horoscope: check today’s forecast for your sign
+ Video: Driver leaves Tesla car on autopilot and sleeps on SP highway
+ Food stamps: understand what changes with new rules for benefit
+ See which were the most stolen cars in SP in 2021
+ Expedition identifies giant squid responsible for ship wreck in 2011
+ Everything you need to know before buying a crockpot
+ Discovered in Armenia most eastern aqueduct of the Roman Empire
+ US Agency warns: never wash raw chicken meat
+ Passenger attacks and pulls out two stewardess teeth
+ Aloe gel in the drink: see the benefits
+ Lemon-squeezing trick becomes a craze on social media
+ Lake Superior: the best freshwater wave in the world?
#Copom #fix #shave #MONEY