June 26, 2022
Selek's rate should continue to rise, Copom notes;  In March, British Columbia expected the current 12.75% to be a "ceiling" |  Economie

Selek’s rate should continue to rise, Copom notes; In March, British Columbia expected the current 12.75% to be a “ceiling” | Economie

This signal contradicts expectations made by authorities and market analysts a few weeks ago. Until March, the government and investors I worked with the idea that the 12.75% level would be Selic’s “ceiling” for 2022), cutting off the bullish cycle began in 2021 (Read more below).

The exchange rate is one of the government’s main tools to try to contain rising inflation. In a statement issued on Wednesday, Dr Coboom He says it is “likely” that there will be another rate increase at the next meeting, scheduled for June 14-15.

silicate rate evolution

Since 2017, in percentage per year

Source: Central Bank

The one percentage point rise, this Wednesday, marks the 10th consecutive increase in the economy’s base interest rate and takes Selic to its highest level in more than five years.

Also, according to the statement, the advance in the rate of expectations by the committee in June should be “down from the increase in May.”

“The Coboom It is considered […] It is appropriate that the monetary tightening cycle continues to progress significantly into further deflation,” the statement read.

BC high inflation pressures to increase new selec

BC head over 12.75% cap

The signal that Selic’s rate will not rise above 12.75% came from the President of the Republic of British Columbia, Roberto Campos Neto. In March, he arrived at Indicates that the increase in May will be the last advance forecast for this year.

The following month, however, Campos Neto acknowledged that inflation had surprised the monetary authority’s expectations – opening the way for new base rate hikes.

Along the same lines, the committee assessed in the statement that inflation in consumers’ pockets “continued to surprise negative.”

In this scenario, the Coboom He stated that the committee’s assumptions and forecasts now had an “higher than normal” level of uncertainty. for the year 2022, Coboom It works with inflation forecasts of 7.3% and 3.4% for 2023.

Interest rate: Understand what is the base interest rate for the Brazilian economy

Interest rate: Understand what is the base interest rate for the Brazilian economy

The market expects a rise in selec

As of March, financial markets are also beginning to expect the interest rate to exceed 12.75% this year.

Until the eleventh of that month, market analysts’ forecasts, collected in a “Fox” report, had indicated that the Selek rate would not exceed 12.75% in 2022.

However, as of March 18, analysts raised expectations to 13% – and the estimate has continued to rise. In the latest report released last Monday (2), expectations were that the regular price will end the year at 13.25%.

In the statement, the Coboom He stated that the rise in inflation was mainly driven by two factors:

  • The wide rise in prices around the world as a result of the Covid epidemic and the war in Ukraine
  • Investors’ uncertainty regarding government compliance with the country’s tax rules.

Among the key rules in place to control public spending are the fiscal responsibility law and spending cap, which the government raised in 2022 to absorb Auxílio Brasil’s R$400 payments.