‘Communication came in the right tone’, says Simonte Tebet about the Copom minutes

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Minister of Planning commented on the 0.5 point cut in the Selic rate, currently at 13.25% per year. Document points to new future cuts, but without intensifying pace. ‘This time it was all different. I think the Central Bank is to be congratulated,’ she said. Announcement came in the right tone, says Simonte Tebet about the Copom minutes The Minister of Planning, Simone Tebet, said in an interview with GloboNews this Tuesday morning (8) that the Central Bank is to be congratulated after the release of the minutes of the last meeting of the Monetary Policy Committee (Copom), which reduced the Selic, basic interest rate, by 0.50 percentage points, to 13.25% per annum. The document says that the entire committee foresees new cuts of the same magnitude in the coming months, with the improvement in the perspectives for inflation. “This time everything was different. I think the Central Bank should be congratulated, which is now on the same page. The communiqué came in the right tone, the minutes are absolutely enlightening, realistic, showing that it is possible in the next three Copom meetings to reduce interest rates in Brazil by at least 0.5%”, he highlighted. Simone Tebet comments on the minutes of the Copom released this Tuesday (8) and says that the Central Bank is to be congratulated Reproduction/ GloboNews Minutes of the last Copom meeting The Central Bank informed this Tuesday (8) that a reduction in the basic interest rate by 0.25 percentage point or 0.5 percentage points, both assessed last week, were “compatible with the convergence of inflation to the target” in the coming years. The information is contained in the minutes of the last Copom meeting, when the basic interest rate economy was reduced from 13.75% to 13.25% per year. It was the first interest rate cut in three years. The document was released this Tuesday. The minutes also indicate that the Copom will continue reducing interest rates in the next meetings, but in the same current rhythm – that is, without reductions of 0.75 or 1 point, as was already speculated in the market. BC confirms cuts of half a point of Selic in the next meetings The financial market was already projecting, before last week’s meeting, the beginning of the cycle of interest rate cuts by the Central Bank. However, there were still doubts about the size of the reduction. Most of the market believed that the decrease would be smaller, 0.25 percentage points, to 13.50% per year. The BC, however, opted for a more aggressive posture and lowered the Selic rate by 0.5 percentage points, to 13.25% per annum. BC president Roberto Campos Neto had to cast a casting vote in favor of a greater cut in interest rates, something that had not happened for 16 years. The reduction in the Selic rate came after repeated criticism from President Luiz Inácio Lula da Silva and members of the economic area, such as the Minister of Finance, Fernando Haddad, and of Planning and Budget, Simone Tebet. But it only started after inflation began to show a better behavior in recent months. In May, official inflation slowed to a high of 0.23%. And, in June, deflation was registered, that is, a drop in prices of 0.08%. Copom cuts the Brazilian basic interest rate by half a percentage point to 13.25% per year New 0.5 percentage point cuts on the horizon If there was dissent in relation to last week’s cut – 0.25 or 0.5 percentage point –, the minutes of the Copom states that there was “unanimity” on the forecast of future cuts of 0.5 point in the Selic. Committee members assessed that “this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”, says the document. “Such pace combines, on the one hand, the firm commitment to re-anchoring expectations and disinflationary dynamics and, on the other hand, the adjustment to the level of monetary tightening in real terms in view of the more benign dynamics of anticipated inflation in the reference scenario projections “, says the minutes. The Copom also states that the “scenario still inspires caution, reinforcing the vision of serenity and moderation that the Committee has been expressing”, and that it is “unlikely for a further intensification of the pace of adjustments” – that is, cuts more aggressive than 0, 5 point. According to the committee, this intensification “would only come with a significant change in the fundamentals of inflation dynamics, such as a much more solid re-anchoring of expectations, a forceful opening of the output gap or a substantially more benign than expected dynamics of inflation from services”. The text also says that the “extension of the cycle” of cutting interest rates will depend on the “evolution of the inflationary dynamics”. The Copom does not project, however, what the new Selic level will be at the end of this cycle. How decisions are taken To define the basic interest rate and try to contain rising prices, in the inflation targeting system, the Central Bank looks ahead. At this moment, the institution is already targeting the goal for next year, and also for the beginning of 2025 (in twelve months). This is because changes in the Selic rate take between six and 18 months to have a full impact on the economy. The inflation target for next year, defined by the National Monetary Council (CMN), is 3% and will be considered achieved if it oscillates between 1.5% and 4.5%. Last week, economists in the financial market maintained their inflation estimate for this year at 4.84% and started projecting an inflation of 3.88% for 2024. Behavior of inflation According to the minutes, the evolution of inflation indicators, since the previous Copom meeting, in mid-June, it allowed building the necessary confidence to initiate a gradual cycle of interest rate reductions. Contributed to this scenario, according to the Central Bank, the definition, by the National Monetary Council (CMN), a collegiate formed by the Ministers of Finance, Planning and BC President Roberto Campos Neto, of a continuous inflation target for the coming years . “Reducing inflation expectations, as well as measures of implicit inflation in market assets, reduces the cost of disinflation and has an impact on the ex ante real interest rate of the economy [calculado após o abatimento da inflação estimada para os próximos doze meses]”, informed the BC. The Copom also confirmed that “there was a clear improvement in headline inflation indices, while service inflation continues to decelerate at the margin [nos últimos meses]”. Size and timing of the cuts The Central Bank also signaled, last week, that reductions of 0.50 percentage points in the Selic rate in the next Copom meetings prove to be the “appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process “. At the same time, the institution also ruled out, at least for the time being, the possibility of further cutting interest rates in the future. further boost confidence in the prospective disinflationary dynamics [projetada para o futuro]”, he reported. The Copom also did not give clearer indications of what the size of the interest rate reduction cycle will be in the coming months. “It was emphasized that the extension of the cycle over time will depend on the evolution of the inflationary dynamics, in particular the components most sensitive to monetary policy [definição dos juros] and economic activity, inflation expectations, particularly those over the longer term, its inflation projections, the output gap and the balance of risks”, informed the BC. Public Accounts In the Copom minutes, the BC observed that structural reforms and the “predictability” of public accounts are essential for increasing the productivity of the economy, for potential growth and for greater confidence of companies, investors and families. and uncertainties about public debt stabilization have the potential to raise the economy’s neutral interest rate, with deleterious impacts on the power of monetary policy [definição dos juros] and, consequently, on its cost to the economy”, he added. According to the institution, some BC directors, who vote on the interest rate level, assessed that “some uncertainty” persists among agents about overcoming the fiscal challenges ( improvement in public accounts), due to the fact that market expectations are still not moving towards the zero deficit in government accounts – promised by the Ministry of Finance for 2024. These directors assessed that this “may also be reflected in unanchored inflation expectations for longer terms [anos mais à frente]”. “In this case, the anchoring of expectations around the goals set out in the new fiscal framework, with the maintenance of the external fiscal commitment, in addition to a decrease in uncertainties about the tax measures that underlie the execution of such objective, would contribute to a process faster disinflation”, says the Central Bank, in the minutes of the Copom.

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