With the expectation of another 0.50 percentage point cut in the Selic rate, the meeting of the Monetary Policy Committee (Copom) of the Central Bank this month began at 10:16 am this Tuesday, 19th. After the start of monetary easing, in August, the basic interest rates of the Brazilian economy are at 13.25% per year, from 13.75% before.
The Copom session that began in the morning is a situation analysis, the first part of the meeting in which the collegiate revisits important topics for decision-making on the Selic rate.
The discussion about the situation lasts for the afternoon of this Tuesday and the morning of Wednesday, 20th. In the afternoon of Wednesday, the second part of the meeting will take place, when the committee defines the level of the Selic, which is announced from 6:30 pm, already in the evening.
The financial market is unanimous in its bet on a new reduction of 0.50pp, from 13.25% to 12.75% per year, as widely signaled by the Central Bank. In August, the Copom stated that its members unanimously anticipated a reduction of the same magnitude in subsequent meetings. Since then, when participating in public events, BC directors have repeated that the “bar” is high to accelerate the pace, although the committee has already listed the conditions for this to occur.
They are: “much more solid” re-anchoring of expectations, “forceful” opening of the product gap or “substantially” better dynamics of services inflation. Since then, the only condition that showed positive evolution was the last one, especially considering the relief recorded in the IPCA – official inflation index – in August.
Inflation expectations in the Focus Bulletin remained relatively stable – from 4.84% to 4.86% for 2023, from 3.89% to 3.86% for 2024 and maintained at 3.50% for 2025 and 2026. The The product gap should prove to be closer than the BC estimated, considering the favorable surprise with the Gross Domestic Product (GDP) in the second quarter (0.9%).
There is also market expectation of an increase in the Copom’s official inflation projections, considering the lower estimates of the Selic rate in the Focus Bulletin, the rise in the dollar and oil, in addition to the closer gap. In August, the BC projected 3.4% for the 2024 IPCA, the main focus of monetary policy, against 3% for the center of the target. For 2025, which has a minority weight in decisions, the estimate was in line with the central target, also of 3%.
Most economists believe that the Copom has room to continue reducing interest rates, but it tends to continue at the same pace of 0.50pp in the next meetings, especially considering external and fiscal uncertainties. In the Projeções Broadcast survey, 55 out of 68 institutions consulted expect the rate of cuts to be maintained until the end of the year.
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