You’ve probably read that the Selic was kept stable at 13.75% per year by the Monetary Policy Committee (Copom) of the Central Bank (BC). Your questions now are: what are the risks, how to invest and how much can I earn? I explain these issues, considering the statement that the BC issued after the meeting and the market prices.
After interrupting the Selic high in September, the market started the timer to count and try to guess when the drops should start.
Considering the market prices in interest rate futures contracts, the first Selic drop should occur in March 2023. But be careful in trying to bet on strong drops or anticipation of them.
With the uncertainties listed in the statement, interest rates are unlikely to fall before this deadline. The BC said where to look to try to predict when it will start cutting interest rates.
In the statement he states: “The Committee reinforces that it will persevere until not only the disinflation process is consolidated, but also the anchoring of expectations around its goals”.
However, inflation, as the BC itself states, is under pressure and expectations are high.
That is, the rate should remain at 13.75% per year until market expectations regarding inflation converge to the target.
The 2023 and 2024 inflation targets are 3.25% and 3%, respectively, with a range of 1.5% up or down.
Today, the market expects inflation of 4.94% for 2023. But as the BC explains, there are international uncertainties regarding inflation and local uncertainties regarding the fiscal issue.
In this context, the most advisable thing is to have a balance of exposures in the fixed income portion.
For features that you plan to use in the next 12 to 24 months, CDI-referenced alternatives are currently more advantageous.
It is possible to invest in fixed income funds and CDBs with rates of up to 115% of the CDI for this period. Considering the current CDI, this results in a return of up to 15.7% per year.
For longer horizons, it is important to maintain a share in IPCA, even if it seems disadvantageous in the short term. This is because real interest rates are higher right now. Therefore, by investing now, you guarantee an interesting real interest rate for longer.
Likewise, it is possible to invest in CDBs with rates of IPCA+6.7% per annum maturing in 2026 or 2027. This yield has a premium of 1% above the equivalent public bond rate. Therefore, an almost irrefutable gain.
The balance between securities referenced to CDI and IPCA depends on the period for use and periodic evaluation of returns. The longer the maturity of both, the greater the proportion allocated to bonds that protect you from inflation and guarantee your purchasing power in the long term.
With interest rates so high, risky alternatives may be a smaller proportion of the portfolio.
Among the traditional investment alternatives, one remains disadvantageous. If you still have funds in your savings account, take the opportunity now to migrate to the two alternatives mentioned above and guarantee higher interest rates for your portfolio.
Michael viriato is an investment advisor and founding partner of Investor’s House
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