Copom cuts Selic rate from 12.25% to 11.75% per year and projects new cuts in 2024

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It was the fourth meeting in a row with a reduction in the basic interest rate. The next meeting of the Monetary Policy Committee is scheduled for the end of January 2024. The Monetary Policy Committee (Copom) of the Central Bank decided, this Wednesday (13), to reduce the basic interest rate, the Selic rate, by 0 .5 percentage points, from 12.25% per year to 11.75% per year. This was the fourth consecutive cut in the basic interest rate, which began to decline in August this year. The decision was unanimous. Can the Central Bank accelerate interest rate cuts now? At 11.75%, the rate reached its lowest level since the beginning of March 2022 – when it was 10.75% per year. The Copom is formed by the president of the Central Bank, Roberto Campos Neto, and eight directors of the authority. It is up to the committee to define the Selic level every 45 days. In the statement released after the meeting, the committee once again signaled that it could cut the Selic rate again at the same level – 0.5 percentage points – in the next meetings. “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.” The group’s next meeting is scheduled for January 30th and 31st, 2024. The Selic is the main monetary policy instrument used by the BC to control inflation. The rate influences all interest rates in the country, such as interest rates on loans, financing and financial investments. Copom statement In the statement, the Copom also assesses that the international scenario is “less adverse” than in relation to the period of the last meeting, held at the beginning of November, but that it still requires “caution on the part of emerging countries”, as in the case of Brazil. According to the committee, part of this improvement in the external environment is related to the “cooling of longer-term interest rates in the United States” and signs of the beginning of the process of falling inflation in several countries. This Wednesday, the Federal Reserve (Fed, the central bank of the United States) decided to keep the country’s interest rates unchanged, in a range of 5.25% to 5.50% per year, but signaled the end of the rising cycle. In relation to the Brazilian scenario, the Copom assessed that consumer inflation maintained a disinflation trajectory. On Tuesday (12), the Brazilian Institute of Geography and Statistics (IBGE) announced that the Broad National Consumer Price Index (IPCA), considered the country’s official inflation, rose 0.28% in November, with inflation accumulated in the year of 4.04%. Despite the rise in November, inflation this year is within the range of the inflation targets pursued by the BC. For 2023, the central inflation target was set at 3.25% by the National Monetary Council and will be considered formally met if it oscillates between 1.75% and 4.75%. Central Bank cut the basic interest rate for the fourth time in 2023. Raphael Ribeiro/BCB Fiscal targets In the statement, the committee once again defended the importance of pursuing already established fiscal targets — the same sign already present in the note released after the meeting November. “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.” For 2024, the government seeks a zero deficit, that is, a balance in public accounts, with no negative or positive results. In October, however, President Luiz Inácio Lula da Silva (PT) raised doubts about the topic. At the time, the president said that the zero target would “hardly” be met. Another risk pointed out by experts is the federal government’s dependence on increasing revenue to achieve the objective next year. An additional R$168 billion will be needed in 2024 – and some of the measures to increase revenues are still being processed in the National Congress. The government has the last few days to approve economic agenda priorities in Congress; see projects How decisions are made To define the basic interest rate and try to contain rising prices, in the inflation targeting system, the BC makes projections for the future. At this moment, the institution is also targeting the target of 2025. This is because changes in the Selic rate take six to 18 months to have a full impact on the economy. 💵Selic rate: understand the most important points for the Central Bank’s interest rate decision Next year’s inflation target, defined by the National Monetary Council (CMN), is 3% and will be considered met if it oscillates between 1.5% and 4.5%. From 2025 onwards, the government changed the inflation targeting regime, and the target became continuous, at 3%, and could fluctuate between 1.5% and 4.5% without being breached.

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