Economists see Copom ‘anticlimatic’ with election approaching

The meeting of the Monetary Policy Committee (Copom) of the Central Bank (BC) this week should not bring major surprises to the market. Economists believe that the monetary authority should remain cautious in the face of the electoral scenario.

After keeping the Selic rate stable at 13.75% at the September meeting, the unanimous expectation is that the monetary authority will keep interest rates unchanged at the current level for a few meetings, starting a cut cycle only in mid-year. next.

With the decision on the interest rate level without much room for maneuver, the attention of market agents will be focused on the tone of the communication that will be used by the monetary authority on the scenario projected ahead.

With no major upheavals in recent weeks on the international scene, with the risk of a slowdown in the global economy remaining on investors’ radar, and in the domestic scenario, with electoral uncertainties still in the spotlight, experts expect the BC to only reinforce its commitment to seeking compliance with inflation targets.

“There should not be a relevant change in relation to the signal given in September. The communication should indicate the maintenance of the Selic in a significantly contractionary territory for a prolonged period, and that the Copom will maintain vigilance and will resume the adjustment process if anchoring expectations does not occur as expected”, says Sérgio Goldenstein, chief strategist at Warren Renascença and former head of the Open Market Operations Department (Demab) at the BC.

“There hasn’t been a material change in the balance of risks” since the September meeting, adds Goldenstein. “The Copom is almost a non-event this time.”

According to Fernando Gonçalves, superintendent of economic research at Itaú, there is a certain consensus in the market that the BC should proceed with the cautious communication adopted at the September meeting, even due to the lack of new facts that could generate some change in the conduct of monetary policy.

“The BC will reinforce the tone of caution that was already adopted at the last meeting, indicating that the discussion of interest rate cuts is still a long way off”, says Gonçalves, who foresees the beginning of the reduction in the Selic in the third quarter of 2023, with the rate of interest closing the next year at 11%.

In this week’s Focus report, economists forecast the benchmark interest rate at 11.25% in December next year.

Chief economist at MB Associados, Sérgio Vale says that, in addition to maintaining a relatively stable scenario since September, the proximity of the Copom meeting to the second round of elections should prevent more incisive signals in any direction.

“The BC communiqué must be very anticlimactic, because it is very close to the elections, the BC will not be too aggressive or out of the usual tone so as not to generate any political noise”, says Vale.

Partner and economist at the manager Kairós Capital, Marco Maciel also states that, despite the deflations in recent months, the core inflation of services and food, which indicates the future behavior of prices, is still at a high level, which prevents the BC makes any indication at this moment in the sense of a cut in the Selic in the next meetings.

Bringing inflation expectations down for 2024 will be the tip of the balance for the BC to decide on the start of the interest rate cut cycle, says the economist at Kairós. The market currently works with an inflation expectation of around 3.5% for 2024, above the BC’s 3% target for the period, says Maciel.

The fiscal issue, and the uncertainty about economic policy and the impacts on the conduct of monetary policy from next year, should also be among the aspects to be highlighted in the Copom statement, says the economist.

“There is still no reason to set off fireworks and already signal some more premature cut throughout 2023”, says Maciel. The reduction of the Selic next year, he says, will depend on the conduct of fiscal policy. The economist predicts the Selic at 10.5% at the end of 2023, with the BC starting the process of cutting interest rates as of June.

Coordinator of the Macro Bulletin of FGV Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas), Silvia Matos says that, while the Central Bank’s monetary tightening works to slow the economy, the government’s fiscal policy has acted in the opposite direction, in a a kind of tug of war that hinders the process of controlling inflation.

“We know that the tax cuts will be reversed next year, at least partially. This creates volatility with respect to inflationary expectations”, says the expert.

Risk of global recession should be an increasingly present theme in BC communication

Gonçalves, from Itaú, also states that the global scenario has changed the most since the last Copom meeting, with a growing risk of recession in large economies in 2023. This is an aspect that should “enter more strongly in the communication” of the BC, predicts.

Along with the fiscal, the global scenario is the BC’s biggest concern for 2023, says Vale, from MB. And, in the event of a global recession, the behavior of the exchange rate will be a point of attention to be monitored, especially depending on the conduct of fiscal policy, says the economist.

Goldenstein, from Warren Renascença, says that over the last few weeks the market has started to predict higher terminal interest rates in the United States, reaching a level around 5% in 2023.

The strategist adds that, despite the revision in projections for American interest rates, which could lead to a strengthening of the dollar, the exchange rate in the country did not suffer a great impact, with the American currency having closed last Friday at R$5, 14, against BRL 5.17 at the end of the September Copom meeting – this Monday (24) the American currency soared by almost 3%, at BRL 5.30, but in a movement that is not related to the scenario external environment, but with the attacks by former congressman Roberto Jefferson on federal police on Sunday (23).

“If something extraordinary happened in Ukraine that had very large impacts here, the Central Bank could have to do something else, but at the moment there is nothing saying that,” says Sérgio Werlang, economist and former policy director. BC economy.