Dollar – (Photo: ABrasil)
After surpassing the level of R$ 5.17 in the morning, the dollar in cash cooled down a little throughout the afternoon and ended the session this Thursday, 9th, up 1.01%, quoted at R$ 5.1428 – highest closing price this month. Despite the reduction in losses in the second stage of business, amid intraday adjustments and an improvement in the external environment, the real went against the grain of emerging currencies, which gained ground in relation to the American currency with relief in Treasury rates.
The fall in the Brazilian currency is linked to an increase in the risk premium associated with the possibility of a more tolerant stance by the Central Bank towards inflation from 2025, when the institution’s current president, Roberto Campos Neto, will be replaced. As expected by most economists, the Copom reduced the Selic rate on Wednesday by 0.25 percentage points, to 10.50% per year. There was uneasiness, however, with the prospect of changing the profile of the collegiate suggested by the voting score.
The five members of the committee, including Campos Neto, who opted for a 0.50 cut are older. The four who voted for a 0.50 point cut were nominated by President Luiz Inácio Lula da Silva, a severe critic of the current president of the BC. The minority defeated on Wednesday tends to become the majority in 2025. For now, the director of Monetary Policy, Gabriel Galípolo, is seen as the favorite for Campos Neto’s post.
“The market has increased the probability of a Central Bank less committed to reaching the center of the target. The exchange rate ends up reflecting this, because it is one of the transmission channels of monetary policy. With higher inflation, the currency loses value”, says the economist -head of Banco Pine, Cristiano Oliveira, highlighting that dissent is common in central banks in developed countries. “What draws the market’s attention is the fact that the four directors appointed by the current government voted for a larger cut. It could be a future BC that pays more attention to the activity. But the minutes can show whether it was something specific to yesterday’s decision .”
In theory, the reduction in the pace of Selic rate cuts and the harsh tone of the Copom statement would tend to be favorable to the real, as they show a slower narrowing of the differential between internal and external interest rates. If it weren’t for speculation about the BC’s 2025 profile, the Brazilian currency could align this Thursday with the global environment of appreciation of emerging markets in relation to the dollar. Higher-than-expected weekly unemployment claims in the US and a 30-year T-bond auction with above-average demand brought a breather to Treasuries.
Capital Economics states that the real is expected to suffer in the coming quarters despite the slowdown in the pace of Selic rate cuts. The consultancy classifies the depreciation of the real this Thursday as “somewhat surprising” given the increase in future interest rates. “The most likely explanation is that the split decision reveals a strong contingent of ‘doves’ at the Central Bank,” says Capital Economics. “This number will probably rise next year, when the government appoints more members to the Copom, which could lead to a downward trajectory in interest rates.”
For economist André Galhardo, economic consultant at Remessa Online, the exchange market’s reaction to the Copom dissent was “disproportionate”. He recalls that there was consensus in several previous meetings, with aligned votes from Campos Neto and Galípolo. For Galhardo, there are several arguments that would justify a cut in the Selic rate by 0.50 percentage points, as defended by the minority of the BC committee on Wednesday.
“The real interest rate is still high. Although there is uncertainty abroad and the impact of the change in the fiscal target, the inflation trajectory points downwards”, says Galhardo. “The market is making such an uproar today with the vote of the four directors appointed by the Lula government, but I believe that the dollar should continue to operate in the corridor between R$5.05 and R$5.15.”
