The Ibovespa index took a significant hit, closing 1% lower at 128,188.34 points after the Central Bank of Brazil (Copom) trimmed the Selic rate to 10.50% per annum.
The reduction by 0.25 percentage points, down from 10.75%, surprised markets and signaled a cautious approach to monetary easing.
This slight rate cut amplified investor concerns, leaving many worried about future policy direction.
The Brazilian real mirrored this uncertainty as the dollar gained 1.01% against it, trading at R$5.14.
Simultaneously, futures interest rates increased across the board. Despite some intraday recoveries, anxiety over inflationary and fiscal challenges dampened market sentiment.
The Copom’s decision wasn’t unanimous, revealing a split within the committee regarding the proper pace of monetary easing.
Members aligned with the current administration favored a smaller reduction, reflecting potential shifts in monetary policy by 2025.
Economists, like Rodolfo Margato of XP, noted the absence of forward guidance, which left markets uncertain about Copom’s upcoming steps.
The Bank of America (BofA) emphasized Copom’s concern over external economic uncertainties and fiscal policies.
They expect the Selic rate to fall to 10.25% in June before Copom temporarily halts easing. This divided vote reinforced BofA’s view that data dependency will shape further adjustments.
Market Volatility
Corporate earnings reports also dragged down the Ibovespa. Banco do Brasil shares fell by 4.37% despite exceeding profit expectations with a 20% return on equity.
Lojas Renner lost 6.47%, citing challenges from the Rio Grande do Sul floods.
On the other hand, Casas Bahia and Magazine Luiza shares rose on better-than-expected earnings and restructuring efforts.
Fiscal sustainability concerns grew as the federal government rolled out a R$50.9 billion emergency aid package for Rio Grande do Sul.
This plan aims to support disaster victims but could pressure Brazil’s fiscal balance.
April inflation data will be closely watched to gauge how these monetary and fiscal actions affect the economy.
Copom members continue to approach additional rate cuts cautiously amid persistent market uncertainties.