After IPCA, analysts bet on Selic cut in August – 06/07/2023 – Market

With inflation lower than expected in May, analysts began to consider a cut in the Selic (basic interest rate) even before September, the month that is seen by the market as the most likely for the beginning of the reduction process.

Of the 13 investment banks and analysis houses consulted by Sheet, 11 bet on the beginning of the interest rate cut cycle between August and September this year. Among them, eight see the possibility of starting monetary relief in the country as early as August, with some calibrating their expectations after the release of official inflation in Brazil this Wednesday (7).

According to the IBGE (Brazilian Institute of Geography and Statistics), inflation measured by the IPCA (National Index of Broad Consumer Prices) slowed down in May, to 0.23%, after advancing 0.61% in April. The data was below the median of market expectations raised by Bloomberg, 0.33%.

Analysts also draw attention to the retreat of all core inflation measures. The cores better capture the country’s price trend by disregarding disturbances resulting from temporary shocks, excluding more volatile items, such as energy and food, from the account.

Among those who revised their projections shortly after the release of the IPCA are Nova Futura Investimentos and Mirae Asset, which changed the Selic cut estimates from September to August. Mirae also changed the level at which the basic interest rate should reach the end of the year, changing from 12.75% to 12.25%.

In addition to inflation, economist Julio Hegedus Netto, from Mirae, says that the improvement in the relationship between the government of President Luiz Inácio Lula da Silva (PT) and the Central Bank also justifies the change in bet.

Genial Investimentos, which previously projected interest at 13.75% by the end of 2023, now sees room for a Selic cut this year, seeing the best time to do so from September. “Past experience strongly advises against early interest rate cuts when the disinflation process has not yet been consolidated”, highlights the analysis house.

Warren Investimentos did not change its estimate for the start of the monetary easing cycle, which is September 2023, but reported that “the probability” of a cut in August “greatly increased”. “The decisive factor is the definition of the inflation target by the CMN [Conselho Monetário Nacional] on June 29,” he informed Warren through his press office.

Bradesco and BTG Pactual, which are also working with the scenario of an interest rate drop starting in September, acknowledged this Wednesday that the start date of cuts could be brought forward. “For now, we see cuts from September, but we recognize that, depending on the interaction of macro variables, the cycle can be brought forward to August”, says the chief economist for Brazil at BTG, Cláudio Ferraz.

In addition to the disinflation process in Brazil and the world, the bank observes the approval of the new fiscal framework and the change or not of the inflation target by the CMN as variables.

XP and Inter reinforced their interest rate cut expectations for August after the release of the IPCA this Wednesday. For Inter, there would be room for a Selic reduction already at the Copom (Central Bank Monetary Policy Committee) meeting this June, but considering the stricter communication at the previous committee meeting, it maintained the bet for August.

Among foreign banks, Goldman Sachs did not set a date, seeing a probability of loosening the monetary policy within two to three months, that is, at the Copom meetings in August or September. Bank of America, on the other hand, reaffirmed its bet on cutting in August, while UBS has September as its base scenario.

DIVERGENT VISIONS

Within the survey carried out by Sheetonly three banks differ from the analyzes about the beginning of interest rate cuts.

Itaú BBA maintained its estimate of the Selic reduction at the Copom meeting that will take place between October 31st and November 1st. The advisory informed, however, that in the coming days the bank should have news in its projections.

Santander Brasil also reinforced, for the time being, its expectation of reducing interest rates only from November.

Ativa Investimentos is the one that has the most discrepant bet from the rest of the analysts, projecting a Selic cut in the second quarter of 2024. The chief economist of the house, Étore Sanchez, says, however, that Ativa is in the process of reviewing its models.

“For the time being, we have two main obstacles to changing the Selic scenario: the weakening of expectations for 2026 onwards and the upward trajectory of the economy’s neutral interest rate”, he argues.