Copom should make another cut of 0.5 points, market predicts

The Central Bank’s Monetary Policy Committee (Copom) will decide this Wednesday (31) the new interest rate. Everything indicates that the body should maintain the behavior recorded since August: a cut of half a percentage point, taking the Selic from 11.75% to 11.25% per year.

In the domestic scenario, the exchange rate has remained well-behaved and stable for a few months, fluctuating around R$4.90. However, economic analysts highlight some concerns. One of them is in relation to inflation. The IPCA cores are slightly above the 3% target for the year, with service prices increasing further. Although January’s IPCA-15 was lower than expected, economists at XP Investimentos warn of this more delicate situation.

Another source of concern is the maintenance of the economy’s heating. Retail sales and services data surprised positively in November. The Central Bank’s Economic Activity Index (IBC-Br) interrupted a sequence of three consecutive months of decline and remained practically stable. XP Investimentos highlights the acceleration of real wages in the last months of 2023, indicating a heated job market.

According to the chief strategist at Warren Investimentos, Sérgio Goldenstein, uncertainties persist regarding government revenue and the implementation of fiscal policy.

The government’s difficulty in reducing payroll tax benefits, which could compromise budget goals, and the announcement of a “new industrial policy” reinforce the expansionist bias of fiscal and parafiscal expenses, highlights XP.

Goldenstein points out that the negative effects on the monetary easing process could come from the increase in the neutral interest rate (which has no influence on inflation), the volume of subsidized credit and the potential expansionary impacts on aggregate demand.

However, all of this is insufficient for the committee to reduce the pace of cuts to 0.25 percentage points. The Warren strategist argues that the Selic is still at a very contractionary level, there is no additional de-anchoring of inflation expectations for 2025 and 2026 and there is an expectation of a slowdown in economic activity.

Itaú also assesses that the Copom should maintain the pace of the cut by half a percentage point, especially in a scenario with greater than usual uncertainty. The financial institution’s economists estimate that the Selic is still far from its terminal level, estimated at 9% per year.

The international scenario also presents uncertainty

In the external scenario, long-term interest rates in developed markets are close to the levels observed at the previous meeting, despite stronger volatility. Commodity prices fell, but oil prices are slightly above December levels, points out XP Investimentos.

A source of concern comes from the increase in geopolitical tensions, with the attack by Yemen’s Houthis on vessels in the Red Sea. The fear is that if the problem persists, the effect on sea freight prices could reverse the global trend of cost disinflation, a key effect behind the recent improvement in many countries’ inflation outlook.

An alternative found by logistics operators and shipping companies is to divert maritime traffic through southern Africa, which causes delays in deliveries and increases freight costs, as the distance traveled is greater.