Barclays says Brazilian central bank’s Selic cut cost trust

Barclays says Brazilian central bank’s Selic cut cost trust. Roberto Secemski from Barclays pointed out that this move goes against the bank’s previous careful approach.

He thinks starting the reduction process more slowly would have been better and helped lower inflation expectations.

Secemski mentioned that making money decisions always involves some give and take.

The choice to reduce by 0.50pp lost trust and might slow progress towards the goal. However, the inflation expectations for 2025 and 2026 remain steady at 3.5%.

The officials who wanted a smaller 0.25 percentage point reduction, but were outvoted, usually represent the more technical parts of the bank.

In early August, the Central Bank reduced the Selic rate to 13.25%, even though most experts predicted a smaller reduction to 13.50%.

The decision was close, with a 5 to 4 vote. The Monetary Policy Committee (Copom) signaled it plans to continue at this rate in the next meetings.

Recently, investors worried about the government’s ability to get rid of the budget deficit next year because it needs to increase its income.

Secemski thinks changing the goal would damage fiscal trust even more.

If the government won’t meet the goal, it’s better to miss it and set off the alarm bells. Barclays predicts a 1.1% deficit for 2024 if no new income measures are taken.

This means about R$120 (US$24) billion would be needed to balance the budget.