Copom makes another cut in the basic interest rate, and Selic drops from 13.25% to 12.75%

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It is the second consecutive cut in the basic interest rate, which began to decline in August this year. With today’s decision, the index reached its lowest level in the last 16 months. The Monetary Policy Committee (Copom) of the Central Bank decided, this Wednesday (20), to reduce the Selic rate from 13.25% per year to 12.75% per year. The decision was unanimous. All directors voted for the reduction. ✅ Click here to follow the new g1 channel on WhatsApp. In the statement released after the meeting, the committee argued that the rate reduction is “compatible with the strategy of inflation convergence around the target over the relevant horizon, which includes the year 2024 and, to a lesser extent, the year 2025”. The Copom once again defended that the scenario demands “serenity”, but has already signaled that it could cut the Selic rate again by 0.5 percentage points at the next meeting. “If the expected scenario is confirmed [de desinflação e ancoragem das expectativas em torno da meta de inflação], the members of the Committee, 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”, stated the Copom in a note. In the collegiate’s assessment, the execution of the fiscal targets established by the federal government can contribute to the process of anchoring inflation expectations and to the conduct of monetary policy. This was the second consecutive cut in the basic interest rate, which began to decline in August of this year. On the 12th, 75%, the rate reached the lowest level in the last 16 months. The reduction announced this Wednesday was already expected by the financial market. This is because in the statement from the last meeting, the Copom signaled that it could continue reducing the Selic by the “same magnitude” of the cut adopted in August. That is, 0.5 percentage points. READ ALSO: Selic rate: understand the most important points for the Central Bank’s interest rate decision Copom Meetings The Copom is formed by the president of the Central Bank, Roberto Campos Neto, and eight directors of the agency – two of them appointed by President Lula. The board usually meets every 45 days to define the Selic rate level. This year, the committee will still meet twice: on October 31st and November 1st, on December 12th and 13th Basic interest rate Selic rate: understand what the basic interest rate is for the Brazilian economy Selic is the rate basic interest rate of the economy. It is the main monetary policy instrument used by the BC to control inflation. The index influences all interest rates in the country, such as interest rates on loans, financing and financial investments. When inflation is high, the BC raises the Selic. When inflation estimates are in line with the inflation target, the BC can reduce the Selic. To define the basic interest rate and try to contain the rise in prices, the BC is already targeting, at this moment, next year’s target and the objective, in 12 months, for the beginning of 2025. Last week, economists of the financial market reduced this year’s inflation estimate, from 4.93% to 4.86% (still above the inflation target range for 2023), and started to project inflation of 3.86% for 2024 (within the target range). For 2023, the inflation target was set at 3.25%, and will be considered formally met if it fluctuates between 1.75% and 4.75%. Next year’s inflation target is 3% and will be considered met if it fluctuates between 1.5% and 4.5%.

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