Analysts maintain bets for Selic cut in August – 06/22/2023 – Market

Even after the Copom (Monetary Policy Committee) did not give clear signals about the beginning of the easing of the Central Bank’s monetary policy, banks and analysis houses that were betting on a first cut of the basic interest rate (Selic) in August maintained their projections.

Last Wednesday (21), the members of the committee decided, after two days of meetings, to maintain the Selic rate at 13.75%, arguing that “this decision is compatible with the strategy of convergence of inflation towards the target over the relevant horizon”.

The statement that followed the decision came out more “hawkish” than expected. The term in English is widely used by the market to refer to pessimistic messages from monetary authorities.

Even so, analysts found counterpoints in the statement, understanding that the decision of the next Copom meeting, which takes place in August, is open, depending on new economic data and market projections.

“Who will cut the interest rate is no longer the Central Bank, but Focus [boletim semanal do BC que coleta e resume as estatísticas calculadas por analistas do mercado]. We have to observe if they [analistas] whether or not they will anchor interest rate cut expectations at the next Copom meeting”, says economist André Perfect, a name known in the financial market for his bets on the economy.

Although they have reinforced their projections about the beginning of the Selic cut, analysts are also cautious in their projections, as the Central Bank showed yesterday in the Copom communiqué.

“In general, the Copom did not explicitly or implicitly signal an interest rate cut at the August meeting”, say analysts at the American bank Goldman Sachs.

“But by adopting a more neutral stance/bias, dependent on data, in addition to other slightly positive modifications in the communiqué, the Copom indirectly showed that, if the current and prospective inflation scenario and risk balances continue to improve (… ) August will likely be a ‘live meet’ for a rate cut.”

The American bank continues to expect the interest rate reduction cycle to begin in August, albeit with caution and also awaiting the decision of the CMN (National Monetary Council) on a possible modification of the inflation target, at the end of this month. If the initial Selic reduction does not happen in August, Goldman Sachs awaits at least a cut signal for September.

Banco Inter hopes that, by August, an evolution in the inflationary scenario will allow a change in the course of monetary policy and the start of cuts in the Selic already at the next meeting. Even so, the financial institution awaits a more conservative easing of monetary policy, with an initial cut of 0.25 percentage points in the interest rate.

“Among the conditioning factors, the main one is the expectation of longer inflation which, despite the recent improvement, remains unanchored”, justifies Inter.

In fact, in yesterday’s statement, Copom members anticipate an increase in accumulated inflation over the second half of the year, despite the improvement in full consumer price indices.

BTG Pactual also understands that Brazil should follow a positive evolution in economic data until August, which should support an initial cut of 0.25 pp. interest rate changes at the next Copom meeting. Despite the pessimistic tone of the statement, in BTG’s view, the Central Bank did not rule out a Selic reduction in August.

Warren Investimentos understands that the BC’s toughest statement was aimed at containing excessive optimism in the market and maintained its bet that the Selic rate would be cut in August, starting with a reduction of 0.25 pp..

XP, on the other hand, sees a sign in the Copom communiqué that keeping the Selic stable is not necessarily the committee’s plan. This is because the text says that the strategy of maintaining the interest rate at current levels for a long period “has been adequate” to ensure the convergence of inflation. In the last statement, the BC said that the current Selic is “capable of” ensuring this convergence.

“We see the Copom statement consistent with our baseline scenario (since April), which considers a cut of 0.25 pp. in August”, says the chief economist at XP, Caio Megale.

Nova Futura Investimentos maintains, “in a preliminary way”, the projection of the Selic cut at 0.25 pp. In August. “Deleting the section [do comunicado] about the possible resumption of the bull cycle was already expected, but the text had a harsher tone than expected by us, without major signs about the beginning of the cut cycle”, he counters.

The chief economist at Mirae Asset, Julio Hegedus, who predicted interest rate cuts in August before the Copom meeting this month, now says he believes that the beginning of the easing of the monetary policy should be between August and September. “Nothing was said in the statement. Firming projections is pure speculation”, he says.

“The process must be gradual, with the first cut between 0.25 pp. and 0.5 pp., for the Selic to close the year at 12.50% or 12.25%”, he adds.

The most optimistic is Bank of America. By reinforcing its projection of the beginning of the Selic cut for August, the bank estimated an initial reduction of 0.50 percentage points in the basic interest rate. “All in all, the communiqué is one more step in the BC’s communication towards a more optimistic posture”, says the American bank.

Still, the institution remained cautious. “But [o comunicado] it is not a promise to cut interest rates at the next meeting”.