June 25, 2022
Selic

Copom should raise the interest rate to 12.75% tomorrow

Next Wednesday (4), Copom should raise Selic to 12.75%, an increase of one percentage point. According to economists, the price adjustment will make the financial scenario tighter.

Even with the next adjustment slower than the others, economists from large financial institutions highlight rising inflation, which has exceeded 12% annually, and thus deteriorating expectations as key points for the Central Bank (BC) not signaling the end. for the upward cycle.

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Copom meeting may increase Selic rate

Based on this information, we may see even larger increases in the base rate. To determine the value of Selic, Copom notes some factors, such as:

  • The state of the values ​​of world non-industrial goods in connection with the war in Ukraine;
  • devaluation of the US currency, the Federal Reserve raised interest rates – which will hold a meeting on the same day;
  • The Covid-19 pandemic.

During the last meeting, the central bank set some expectations, including the dollar at 5.05 Brazilian real and a barrel of oil at $100.00 at the end of the year, factors that would push inflation to the target in 2023.

With that, the dollar fell below R$4.60 in April and the commodity is already back close to the value indicated by BC. However, this was not enough to reduce inflation expectations.

Expert predictions for Coboom meeting

Banco Ita’s chief economist, Mario Mesquita, analyzed the scenario and made the following predictions:

  • Copom should indicate an additional moderate adjustment for its next meeting, while maintaining flexibility, underlining that risks are mostly high for inflation;
  • The Committee should emphasize that in the event of uncertainty, future steps of monetary policy can be adjusted to ensure that inflation converges with its objectives;
  • BC should increase Selic’s rate by 1pp and its communications should highlight rising international uncertainty, amid conflict between Russia and Ukraine, the Covid-19 outbreak in China, and rising inflation and interest rates in developed countries.

According to Fernando Honorato, Chief Economist at BradescoThe forecast will be as follows;

  • BC should raise Selic to 12.75%, as indicated, and should not commit to future steps, leaving the door open for a decision based on inflation data and development that will be known until the next Copom meeting;
  • “For now, we maintain our final interest rate forecast at 12.75%.”

Other economists who have analyzed the issue are Cassiana Fernandez and Vinicius Moreira, of JPMorgan. According to them:

  • Copom should raise interest rates by 1 percentage point and keep the door open for further tightening, albeit at a slower pace;
  • BC should review the inflation scenario upwards;
  • Given the decoding of inflation expectations and high and broad inflation – the bank expects inflation to end this year at 8% – “it seems appropriate to continue the tightening cycle”;
  • BC should avoid committing to the end of the cycle, buying time to calibrate monetary policy.

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