Dollar advances more than 1% against the real with division in the Copom raising concern By Reuters

By Luana Maria Benedito

SÃO PAULO (Reuters) – The rate jumped more than 1% this Thursday, after a very divided decision due to the slowdown in the rate of Selic cuts the day before raised concerns about changes in the profile of the collegiate, with the Monetary Policy Committee (Copom ) also highlighting in his statement very uncertain international and domestic scenarios.

At 9:54 am (Brasília time), the spot dollar rose 1.11%, to 5.1481 reais on sale. At B3 (BVMF:), the first maturity contract rose 1.16%, to 5.1555 reais on sale.

The Central Bank decided the day before to cut the Selic rate by 0.25 percentage points, to 10.50% per year, interrupting a sequence of six consecutive reductions of half a percentage point and abandoning its indication on the future of basic interest rates.

According to market participants, what had the biggest impact on risk appetite was the division in the decision, which for many reveals a worrying political bias.

According to the Copom statement, the 0.25 point reduction was supported by president Roberto Campos Neto and directors Carolina Barros, Diogo Guillen, Otávio Damaso and Renato Gomes. Nominated by President Luiz Inácio Lula da Silva, Ailton de Aquino, Gabriel Galípolo, Paulo Picchetti and Rodrigo Teixeira voted for a larger cut, of 0.50 percentage points.

According to Alfredo Menezes, partner at the management company Armor Capital, the fact that all those appointed by the government voted for greater monetary easing “may convey the perception that the new BC in January will be greatly influenced by the Executive Branch”.

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Luciano Rostagno, chief strategist and partner at EPS Investimentos, drew attention to the complexity of the situation, as the dollar advances after a smaller interest rate cut that should, in fact, favor the real. This is because the local currency becomes more attractive to foreign investors when Brazil offers higher yields.

According to Rostagno, although a group of directors who prioritize controlling inflation — and who tend to be more cautious in reducing interest rates — prevailed in this Copom, the market knows that many members of this group are leaving.

“The market is already looking ahead, seeing a risk further ahead and placing this in the price… There is a prospect of the balance within the Copom moving in the direction of a more expansionist collegiate, more pro-economic growth to the detriment of greater control inflation and macro stability.”

At the end of 2024, Lula is expected to appoint a new president and two more directors to the BC, as the terms of Roberto Campos Neto and directors Carolina Barros and Otávio Damaso approach their end.

The authority’s director of Monetary Policy, Galípolo, who was also the right-hand man of the Minister of Finance, Fernando Haddad, would be one of the favorites for the presidency of the BC.

Rostagno, from EPS, highlighted that the domestic turmoil comes at a time of risk aversion also abroad, amid the weakness of emerging currencies and the rise in Treasury yields this Thursday, contributing to the dollar’s jump against the real.

The day before, the dollar in cash closed the day at 5.0914 reais on sale, up 0.46%.

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