By Fabricio de Castro
SÃO PAULO (Reuters) – Fears 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 cash rate to rise by more than 1% this year. Thursday, with prices reflecting a perception of increased risk in Brazil, following the BC’s decision the day before on the Selic.
The spot dollar closed the day at 5.1432 reais on sale, up 1.02%. In May, however, the currency still fell 0.95%.
At 5:03 pm, on B3 (BVMF:) the first maturity contract rose 1.12%, to 5,153.5 reais on sale.
On Wednesday night, the BC’s Monetary Policy Committee (Copom) decided by 5 votes to 4 to cut the Selic basic rate by 25 basis points, to 10.50% per year.
It was precisely the division of votes that caught the most attention: all five directors who voted for a 25 basis point cut this Wednesday were appointed by the previous government, while the four directors who defended a 50 basis point cut were appointed by Lula administration.
The division of votes expanded discussions in the market about the Copom’s profile from 2025 onwards, when the institution’s president, Roberto Campos Neto, and two other directors will be replaced by appointments from President Luiz Inácio Lula da Silva. Thus, from January onwards, Lula’s nominees will finally be the majority in the collegiate body, which for part of the market means that the BC could become more dovish (lenient) in controlling inflation.
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Amid these fears, the spot dollar soared against the real in the first minutes of the session, in line with the strong increase in DI rates (Interbank Deposits).
“The market is afraid that, in 2025, Brazil will no longer have an autonomous Central Bank and will have a Central Bank that is more subject to political influence”, summarized Thiago Avallone, foreign exchange specialist at Manchester Investimentos. “Obviously, when shocking news like the Copom decision emerges, there is a first shock: everyone carries out protective operations, even if there is a correction later,” he added.
At the peak of the day, at 10:59 am, the dollar in cash was quoted at 5.1785 reais (+1.71%). During the afternoon, the currency slowed down a little, but still closed close to 5.15 reais.
The increase occurred despite the fact that, abroad, the dollar was falling against strong currencies and in relation to most commodity and emerging exporter currencies.
At 5:09 pm, the — which measures the performance of the US currency against a basket of six currencies — fell 0.27%, to 105.220.
The Brazilian government’s announcement of aid of 50.9 billion reais to Rio Grande do Sul, due to the tragedy caused by the rains, with an impact on the primary result of 7.7 billion reais, was also in the background at the operating tables.
In the morning, the BC sold all 12,000 traditional currency swap contracts offered to roll over July maturities.
