The Monetary Policy Committee (Copom) of the Central Bank (BC) indicated that it should cut the basic interest rate of the Brazilian economy, the Selic, again by 0.5 percentage points in its next meetings. This month, the agency has already reduced the Selic rate from 13.75% per year to 13.25% per year – the first drop in three years.
New cuts are foreseen in the minutes of the meeting that defined the August reduction. The document was released on Tuesday (8).
:: Copom reduces Selic by 0.5 point after three years ::
In it, the Copom informs that, “with regard to the next steps, the members unanimously agreed with the expectation of cuts of 0.50 percentage points in the next meetings and evaluated that this is the appropriate pace to maintain the contractionary monetary policy necessary for the process disinflationary”.
Such a contractionary policy is that of high interest rates in order to retract economic activity and contain inflation. Today, despite the Selic cut, Brazil is the country with the highest basic interest rate in the world, in real terms (interest less inflation), according to the Ministry of Finance.
Government members and President Luiz Inácio Lula da Silva (PT) himself have defended the reduction of the Selic rate to facilitate the resumption of economic growth. The Copom, in turn, informed in the minutes that “there is no evidence that a tightening is under way beyond what would be necessary for the convergence of inflation to the target”.
:: Fall in the Selic rate reduces public debt by around BRL 21 billion ::
The inflation target for 2023 is 3.25%. Until June, it accumulated 3.16% in the last 12 months – that is, it was below the target. Expectations from financial market agents quoted by the Copom, however, estimate that inflation will end the year at 4.8% – that is, above the target and even the 1.5 point tolerance margin defined for it.
These same financial market agents also estimate a 0.5 point cut in the Selic rate next month. The forecast appears in the latest edition of the Focus Bulletin, released by BC this Monday (7). Focus is produced based on estimates collected by the BC with chief economists of financial institutions operating in the country.
:: Banks revise expectations and forecast a further 0.5 point Selic cut at the next Copom meeting ::
Days after the Copom cut the basic interest rate, banks revised their expectations for the indicator, already predicting a level for it by the end of the year.
Until last week, these economists predicted that the Selic would close the month of September at 13% per annum. Now, they predict it to be at 12.75%. For the end of the year, the previous estimate was that the Selic would be at 12%. Now, it is to be at 11.75%.
Editing: Vivian Virissimo