The market expectation is that the BC leadership will opt for a smaller rate reduction of 0.25 ppReproduction / Internet
Published 05/08/2024 12:48
The third session of the situation analysis meeting of the Monetary Policy Committee (Copom) of the Central Bank ended at 11:21 am this Wednesday, 8th. In this phase of the meeting, which started yesterday, the collegiate revisits important topics for decision-making on the rate Selic, currently at the level of 10.75% per year.
This afternoon, the second part of the meeting takes place, when the president of the BC, Roberto Campos Neto, and the institution’s eight directors define the Selic level, which will be announced at 6:30 pm.
In the market, there is a slight majority expectation that the BC leadership will opt for a smaller rate reduction, of 0.25 percentage points, after a cycle of six consecutive cuts of 0.50 pp, which began in August last year. According to the Projeções Broadcast survey, the reduction in pace is the focus of 25 of the 45 houses consulted (55%). Two weeks earlier, the predominant assessment was a new half-point cut in the basic interest rate – 20 institutions remain in this position.
At the previous meeting, in March, Copom members reduced the forward guidance period, removing the signaling of new cuts of the same size in the plural. With the change, the collegiate now only targets the current meeting, with the BC indicating a cut of the same magnitude.
When justifying the change, the board cited the increase in domestic uncertainty and, mainly, abroad. Since then, the situation has become even more extreme and the president of the BC, Roberto Campos Neto, began to adopt a speech considered more hawkish in his public appearances.
More recently, there has been a realization that the Federal Reserve (Fed, the Central Bank of the United States) may take longer than expected to reduce its rates. Furthermore, there is still concern about the domestic fiscal area, the resilience of the labor market and uncertainties about the possibility of contagion for inflation, especially in services. To top it off, the tragedy with the floods in the south of the country adds more uncertainty in relation to the activity and the pursuit of the fiscal target, in accordance with the model chosen by the federal government to help the State.
There were changes in financial market estimates also collected by Projeções Broadcast for the next Copom meetings, increasing the median for June from 10.00% to 10.25% per year and that for July, from 9.75% to 10.00 %. Some houses even started to predict that the Selic rate will end the current cycle at 10.25% per year – at the most optimistic end, one house projects a rate of 8.00% per year.
