Four days before the second round of the elections, the Central Bank’s Copom (Monetary Policy Committee) maintained this Wednesday (26) the basic interest rate (Selic) at 13.75% per year.
This is the second meeting in a row in which there is no change in the Selic level. At the last meeting, in September, the BC collegiate interrupted its most intense interest rate shock since the adoption of the inflation targeting regime in 1999.
The monetary authority reinforced the message that it will remain vigilant, assessing whether the strategy of maintaining the basic interest rate for a “sufficiently prolonged” period will be able to ensure the convergence of inflation.
The BC also repeated the warning that it could adjust the future steps of its strategy and that “it will not hesitate to resume the adjustment cycle if the disinflation process does not proceed as expected”.
Throughout the cycle of monetary tightening (high interest rates), the basic rate left its historic floor (2%) in March 2021 and rose 11.75 percentage points until August this year. There were 12 consecutive increases in the period.
The Copom’s decision was in line with the financial market’s consensus projection that the Selic rate would remain unchanged at 13.75%. A survey carried out by Bloomberg showed that this was the unanimous expectation among the economists consulted.
Since the last meeting, inflation forecasts have followed the downward trend for this year and next, while the forecast for 2024 has remained stable at 3.5% – above the center of the target (3%).
The high risks of recession in the main economies and the course of fiscal policy, dependent on the electoral scenario, put pressure on expectations of longer terms.
As for the external scenario, he highlighted the negative revisions to global growth and increased volatility in financial assets. “The committee also noted the greater sensitivity of markets to fiscal fundamentals, including in advanced countries,” he said.
In relation to Brazilian economic activity, the BC observed a more moderate pace of growth.
According to the latest Focus bulletin, released on Monday (24), the market estimate for the IPCA (Broad Consumer Price Index) dropped to 5.6% in 2022 and dropped to 4.94% in 2023 .
The downward revisions were calculated after the country recorded three consecutive months of deflation (falling prices), from July to September, driven mainly by tax cuts on fuel and electricity.
In the 12-month period up to September, the IPCA was 7.17%, according to IBGE (Brazilian Institute of Geography and Statistics). For the next monthly results, no new deflations are expected, as indicated by the preview of the October index.
In the Copom reference scenario, inflation projections remained at 5.8% for this year and rose from 4.6% to 4.8% for 2023. For 2024, the collegiate marginally raised the forecast to 2.8% to 2.9% (still below the target center of 3%).
Once again, the committee emphasized the period observed six quarters ahead of usual in order to mitigate the direct effects of the tax changes, incorporating the secondary impacts. In the interval until the second quarter of 2024, the projection for inflation accumulated in 12 months is 3.2%.
Despite the more optimistic data, expectations remain above the targets pursued by the BC – set by the CMN (National Monetary Council) at 3.5% and 3.25% for 2022 and 2023, respectively, with a tolerance of 1.5 percentage points for more or less.
In the balance of risks for inflation, among the conditions that would push prices up, the BC once again highlighted the persistence of global inflationary pressures, the uncertainty about the country’s fiscal situation and the pressure coming from the labor market.
In the opposite direction, it indicated the further fall in international commodity prices in local currency, a sharper-than-expected slowdown in global economic activity and the maintenance of tax cuts projected to be reversed in 2023.
Given the lag in the effects of monetary policy on the economy, the year 2024 will gain more weight in the collegiate’s decision on interest rates as the calendar progresses. The Copom meets again on December 6th and 7th to calibrate the Selic rate at the last meeting of the year.
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