Central Bank reduces interest rate by 0.5 point and Selic goes to 11.75%

The Central Bank’s Monetary Policy Committee (Copom) reduced the economy’s basic interest rate by half a percentage point this Wednesday (13), taking the Selic rate to 11.75% per year. This is the fourth consecutive drop in basic interest rates and the lowest level recorded since March 2022. The reduction was already expected by the financial market and was decided unanimously.

In a note, the committee once again defended the government’s “pursuit” of the fiscal target. The Minister of Finance, Fernando Haddad, defends the fiscal target of zero deficit for 2024. However, a wing of the Lula government defends reviewing the target. “Taking into account the importance of implementing the fiscal targets already established for anchoring inflation expectations and, consequently, for the conduct of monetary policy, the Committee reaffirms the importance of firmly pursuing these targets,” said the Copom.

Among the factors that impact the reduction of the Selic is the Broad National Consumer Price Index (IPCA), which measures inflation. The November IPCA, released this Tuesday (12), showed a further decline in the accumulated rate over 12 months, now at 4.68%. Furthermore, the market predicts that the index will close the year at 4.51%, and projects 3.93% for the end of 2024, according to the median expectations.

The Copom pointed out that “consumer headline inflation, as expected, maintained a disinflation trajectory, with emphasis on underlying inflation measures, which are close to the inflation target in the most recent releases.” For the committee, the decision to reduce the Selic “also implies smoothing fluctuations in the level of economic activity and promoting full employment.”

“The Committee reinforces the need to persevere with a contractionary monetary policy until not only the disinflation process is consolidated but also the anchoring of expectations around its goals”, highlighted the Copom.

The entity stated that, if the scenario remains stable, a new reduction of 0.5 percentage points should be applied at the next meeting. “If the expected scenario is confirmed, the Committee members unanimously foresee a reduction of the same magnitude in the next meetings and assess that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”, says the note.