The dollar ended the day at R$5.02, the highest value since October 31, 2023. The rise in the United States currency occurs at the beginning of the week in which new developments in Brazilian and North American economic policies are expected to be announced. On Wednesday (20), both the Copom (Monetary Policy Council), of the Central Bank of Brazil, and the Fed (Federal Reserve), of the USA, decide the new basic interest rates for their respective economies.
The Selic rate should suffer a further reduction of 0.5 percentage points, remaining at 10.75%. In the United States, interest rates must remain between 5.25% and 5.5% per year.
In Brazil, it should be the sixth interest rate drop in a row since August 2023. If confirmed, the index will be the same as in February 2022.
In December, the organization’s directors had already projected fee reductions for subsequent meetings. “The members of the committee unanimously agreed with the expectation of cuts of 0.5 percentage points in the next meetings and assessed that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”, reported the minutes of the meeting of that month.
The assessment considered that the Selic rate is the main instrument of monetary policy to determine inflation in the Brazilian economy. This happens because higher interest rates make credit more expensive, reduce the willingness to consume and discourage new investment options.
Inflation in Brazil ended 2023 at 4.62%, according to the IPCA (Broad National Consumer Price Index), an official measure. The value is 0.13 percentage points below the target ceiling, which was 4.75%. As the index continues to fall, the expectation is that the Selic will continue to fall.
Given the sequence of falling interest rates, the committee noted that there was “relevant disinflationary progress”, but notes that it still views the process of returning inflation to the center of the 3% target, established by the CMN (National Monetary Council), with caution. The minutes highlight the need to maintain a cautious monetary policy.
“There is still a long way to go to anchor expectations and return inflation to the target, which requires serenity and moderation in the conduct of monetary policy. […] Furthermore, uncertainty, particularly in the international scenario, which has proven volatile, prescribes caution”, predicts the document.
From March 2021 to August 2022, the Central Bank raised the Selic rate 12 consecutive times, in a cycle of “monetary tightening” in response to rising food, energy and fuel prices. For one year, from August 2022 to August 2023, the rate was maintained at 13.75% per year for seven consecutive times.
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