Financial market predicts last interest rate maintenance at this week’s Copom and drop from August

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President Lula has pressured the Central Bank to start the process of cutting the economy’s basic interest rate. The market’s projection that the interest rate cut will come in August comes after the release of the May IPCA, which added up to 0.23% and surprised on the upside. The Monetary Policy Committee (Copom) of the Central Bank meets this Wednesday (21) and should keep, for the last time, the basic interest rate of the economy stable at 13.75% per year (the highest level in six years and Midle). As of the beginning of August, analysts expect the Selic rate to start to fall – moving to 13.50% per annum, a cut of 0.25 percentage points. The market’s previous estimate was that interest rates would begin to fall only in September of this year. The information is contained in the “Focus” report, released this Monday (19) by the Central Bank. The survey heard more than 100 financial institutions last week about projections for the economy. The projection that the interest rate cut will come in August comes after the release of the May IPCA, which added 0.23%. In twelve months through May, official inflation totaled 3.94%. The numbers came in well below financial market estimates. See market expectations for the Selic rate up to the end of the year Copom of June 20th and 21st: 13.75% per year Copom of August 1st and 2nd: 13.50% per year Copom of September 19th and 20th: 13 .25% pa Copom of October 31st and November 1st: 12.75% pa Copom of December 12th and 13th: 12.25% pa Inflation targets To define the basic interest rate and try to contain the increase of prices, in the inflation targeting system, the Central Bank looks ahead. At this moment, the institution is already aiming at next year’s goal. This is because changes in the Selic rate take between six and 18 months to have a full impact on the economy. Last week, financial market economists reduced the inflation estimate for this year from 5.42% to 5.12%, and started to project an inflation of 4% for 2024. The inflation target for next year, defined by the Council Monetary Policy (CMN), is 3% and will be considered met if it fluctuates between 1.5% and 4.5%. Pressure from Lula President Luiz Inácio Lula da Silva has been pressuring the Central Bank to start the process of reducing the economy’s basic interest rate – which criticizes the effect of high interest rates on economic growth and job creation. On May 1st, Labor Day, for example, Lula linked the current level of the Selic to unemployment and said that the interest rate is partially “responsible” for the situation in the country. “We can no longer live in a country where the interest rate does not control inflation, it controls, in fact, unemployment in that country because it is responsible for part of the situation we are experiencing today”, said Lula, on the occasion. .

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