By Fernando Jasper
The Central Bank’s Monetary Policy Committee (Copom) ignored pressure from President Luiz Inácio Lula da Silva (PT) and indicated that it might maintain the basic interest rate (Selic) at the current level – the highest in six years – for a “prolonged period,” or even raise it.
“Considering the uncertainty surrounding its scenarios, the Committee remains vigilant, evaluating whether the strategy of maintaining the basic interest rate for a prolonged period will be able to ensure the convergence of inflation,” says a statement published on Wednesday night (22) after maintaining the Selic at 13.75% per year for the fifth consecutive meeting – the second since the beginning of the Lula administration.
Although the president has been demanding a reduction in the rate since the beginning of the year, most bank analysts and consulting firms expected the maintenance of interest rates this week.
What drew attention was Copom’s warning that later on, it may even “resume the adjustment cycle” – that is, raise the Selic – if inflation does not fall as expected.
“The Committee emphasizes that the future steps of monetary policy may be adjusted and will not hesitate to resume the adjustment cycle if the disinflation process does not go as expected,” the text states.
Copom’s communiqué sees the possibility of lower inflation in cases such as an additional fall (in reais) in commodity prices, a stronger deceleration in the global economy because of problems in the banking system, and a stronger deceleration in credit in Brazil.
However, the collegiate gave more attention to the increase in inflation expectations since the previous meeting, held in early February.
The median of the market’s projections indicates an IPCA close to 6% at the end of this year and 4.1% in 2024 – in both cases, above the annual targets of 3.25% and 3%, respectively.
Copom also called attention to “the uncertainty about the fiscal framework and its impacts on expectations for the trajectory of the public debt.”
Copom’s decision provoked protests from entities such as the National Confederation of Industry (CNI) and allies of the government, such as the Central Workers Union (CUT) and the president of the PT, federal representative Gleisi Hoffmann (PR).
The CNI said that maintaining the rate is “unnecessary for the fight against inflation and only brings additional costs to economic activity.
Gleisi directly questioned the president of the Central Bank, Roberto Campos Neto.
“Don’t you understand your commitment to Brazil? Your interest rates only benefit rent-seekers and those who don’t produce.”
The Minister of Finance, Fernando Haddad, said he considered the Central Bank statement “worrying”.
Although the text mentions the uncertainties about the fiscal framework, whose presentation was postponed by Lula, the minister understood that the lack of definition did not affect the decision of Copom.
On Friday (23), the Minister of Planning and Budget, Simone Tebet, stated that the maintenance of the Selic was expected but that the communiqué was “tighter” than the one predicted by the government.
“Let’s wait for the minutes, that these minutes come impartially and fairly with Brazil, obviously bringing the external factors that led the Central Bank to maintain the rate of 13.75%, but also recognizing the facts,” she told journalists.
“And the facts show all the effort that the federal government is making so that we can contain public spending, present relevant social projects, but with fiscal responsibility,” Tebet added.
WITH THE SELIC AT 13.75%, BRAZIL’S REAL INTEREST RATE IS THE HIGHEST IN THE WORLD
According to Infinity Asset, Brazil’s real interest rate (discounting inflation) is the highest among the 40 major economies in the world.
According to the survey, the difference between the DI interest rate and the projected inflation for the next 12 months is 6.94%, ahead of Mexico (6.04%) and Chile (4.92%).
In the average of 40 countries, the real interest rate is negative – that is, lower than inflation – at 1.92% per year.
In the United States, which raised its basic interest rate again on Wednesday, the real interest rate is 0.36% per year.
HOW THE MARKET REACTED TO COPOM’S DECISION, AND WHAT ARE THE EXPECTATIONS FOR THE SELIC
The projections of banks, brokerage houses, and investment houses for the Selic rate in the coming months vary a lot.
According to the Focus report from the Central Bank, some expect a rate of 10.75% per year in December, and others see the interest rate maintained at 13.75% until then.
The median of the bets is 12.75% per year, which indicates a cut of one percentage point until the end of the year.
Just as the hunches vary greatly, the reactions to Copom’s note also vary.
Sérgio Goldenstein, the chief strategist at brokerage Warren Rena, maintained his prediction that the Selic would start to fall in June and end the year at 11%.
However, he said that there is an increased chance that the rate will not change until then or that it will only start to fall in the last meetings of 2023, “given Copom’s tough tone, the increase in inflation projections and the risk that the new fiscal framework is not seen as credible.
Bradesco understands that Copom continues to indicate little room for interest rate cuts.
But it pointed out that the decision announcement “is compatible” with its expectation that the cycle of interest rate cuts will begin in the second half of the year, with the Selic closing the year at 12.25%.
The chief economist of Daycoval Asset, Rafael Cardoso, understood that the Copom statement was “sober because it recognizes new risks on the radar that could be considered downward for the interest rate” but that these risks “were not enough for the Central Bank to alter its flight plan at this point, reinforcing its commitment to the targets”.
For Nova Futura Investimentos, Copom showed “greater conservatism than anticipated” and “will continue to wait and see” until uncertainties diminish and the fiscal framework justifies a revision of position.
“For now, we do not see reasons to change our scenario, and we expect the Selic rate to remain at 13.75% until September 2023,” pointed out the chief economist, Nicolas Borsoi.
XP Investimentos interpreted that BC’s decision and statement are consistent with its scenario of Selic at 13.75% until the end of the year.
“We recognize, however, that if the economy slows down more than expected, we may observe a gradual easing cycle starting in the second half of the year,” wrote Caio Megale, chief economist.
With information from Gazeta do Povo