Dollar closes close to R$5.15 and Ibovespa falls with smaller cut in Selic and division of BC

The fear that the Central Bank may become more lenient in combating inflation from 2025 onwards, when the directors appointed by the Lula government will become the majority in the institution, caused the spot dollar to rise more than 1% this Thursday, 9 , with prices reflecting a perception of increased risk in Brazil, following the BC’s decision the day before on the Selic.

The dollar in cash closed the day at R$5.1432 on sale, up 1.02%. In May, however, the currency still fell 0.95%. Ibovespa, the Brazilian stock market reference index, fell 0.97%, to 128,221 points, according to preliminary data. See quotes.

The day before, the BC decided to reduce the pace of cutting the basic interest rate, promoting a 0.25 percentage point cut in the Selic, to 10.50% per year, in a split decision (5×4 score), in addition to abandon its indication on the future of basic interest rates.

The 0.25 point cut was supported by president Roberto Campos Neto and directors Carolina Barros, Diogo Guillen, Otávio Damaso and Renato Gomes. Nominated by Lula, Ailton de Aquino, Gabriel Galípolo, Paulo Picchetti and Rodrigo Teixeira voted for a larger reduction, of 0.50 percentage points.

Repercussion

“Two hypotheses are raised after the decision: the first concerns an early transition between governments, which we should see towards the end of the year; The second is the most serious and raises questions about how technical the Copom’s decision is, a body that should be strictly technical”, said Étore Sanchez, from Ativa Investimentos, in a note to clients.

For Gustavo Cruz, chief strategist at RB Investimentos, the market should start pricing lower interest rates for 2025 and 2026, as it is already clear that other directors appointed by President Lula have a view that the rate should be at lower levels.

“The Copom’s decision reflects a balance between prudence and reactivity, seeking to navigate an uncertain economic environment without compromising the long-term objectives of price stability and sustainable growth. The future trajectory of Brazilian monetary policy will depend on how these global and domestic variables evolve, and whether the Central Bank will be able to adjust the Selic rate to levels that promote economic recovery without fueling inflationary pressures”, he assessed.

Even with the new cut, Brazil remains in 2nd place in the world ranking of real interest rates, below only Russia, according to a survey by Infinity Asset Management of the 40 most relevant countries in the global fixed income market.

In nominal terms, the country is in 6th place, below Argentina, Turkey, Russia, Colombia and Mexico and above South Africa, Hungary and Chile.