The sixth meeting of the year of the Monetary Policy Committee (Copom), of the Central Bank (BC), begins this Tuesday (19) to define the basic interest rate, the Selic. Influenced by the sharp drop in inflation in recent months, the agency must reduce the rate, currently at 13.25% per year, to 12.75% per year.
If it occurs, this will be the second cut since August, when the monetary authority interrupted the monetary tightening cycle.
In the statement from the last meeting, at the beginning of August, the Copom reported that the directors of the BC and the president of the body, Roberto Campos Neto, had unanimously predicted cuts of 0.5 percentage points in the next meetings.
According to the most recent edition of the Focus Bulletin, a weekly survey of market analysts, the base rate will actually fall by 0.5 percentage points, although some institutions project a cut of up to 0.75 points. The financial market’s expectation is that the Selic will end the year at 11.75% per year. This Wednesday (20), at the end of the day, Copom will announce the decision.
Inflation
In the minutes of the last meeting, the body also reported that the evolution of the economic scenario and the sharp drop in inflation allowed “to accumulate the necessary confidence to begin a gradual cycle of monetary easing”. After a series of harsh statements at the beginning of the year, in which it did not rule out the possibility of raising the Selic Rate, the Copom changed its tone due to price behavior.
Despite the decline in inflation, the Copom reported that some prices are still rising or falling less than expected. According to the agency, the monetary authority will reduce interest rates conservatively.
“Whatever the decision was (cut of 0.25 points or cut of 0.5 points at the last meeting), there was a consensus that a scenario with inflation expectations with only partial re-anchoring, core inflation still above the target, services inflation above the level compatible with the inflation target and resilient economic activity requires a more conservative stance throughout the monetary policy easing cycle”, reported the minutes of the August meeting.
With the strong slowdown in price indices in recent months, inflation expectations have fallen. According to the latest Focus Bulletin, a weekly survey of financial institutions carried out by the BC, the inflation estimate for this year went from 4.93% to 4.86%.
In August, driven by housing and health, the IPCA was 0.23%, according to the Brazilian Institute of Geography and Statistics (IBGE). Despite accelerating compared to July, the indicator was below forecasts due to the drop in food prices. As a result, the indicator accumulated an increase of 3.23% in the year and 4.61% in the last 12 months.
Taxa Selic
The basic interest rate is used in negotiations of public bonds issued by the National Treasury in the Special Settlement and Custody System (Selic) and serves as a reference for other rates in the economy. It is the Central Bank’s main instrument for keeping inflation under control. The BC operates daily through open market operations – buying and selling federal public bonds – to keep the interest rate close to the value defined at the meeting.
When Copom increases the basic interest rate, the purpose is to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. Therefore, higher rates can also make it difficult for the economy to expand. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
By reducing the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity.
The Copom meets every 45 days. On the first day of the meeting, technical presentations are made on the evolution and perspectives of the Brazilian and world economies and the behavior of the financial market. On the second day, the members of the Copom, formed by the BC board, analyze the possibilities and define the Selic.
Meta
For this year, the inflation target that must be pursued by the BC, defined by the National Monetary Council (CMN), is 3.25%, with a tolerance range of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%. For 2024 and 2025, the targets are 3% for both years, with the same tolerance interval. The target for 2026 will be defined this month.
In the latest Inflation Report, released at the end of June by the Central Bank, the monetary authority recognizes the possibility of a slight breach of the inflation target this year. In the document, the estimate is that the IPCA will reach 5% this year. The next report will be released at the end of September.
The information is from Agência Brasil
The post Copom meeting expects interest rate cuts appeared first in Jornal de Brasília.
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