For the fourth time in 2023, Copom decides to keep Selic at 13.75% and says that moment still calls for ‘caution’

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Market expectation is that Copom will start to lower the rate in August. Government and market sectors have been pressuring the BC for a drop in interest rates. The Monetary Policy Committee (Copom) of the Central Bank decided, this Wednesday (21), to maintain the Selic rate at 13.75% per annum – a level in force since August 2022. It was the fourth Copom meeting this year. On each occasion, the committee decided not to change the base interest rate level. “The current situation, characterized by a stage of the disinflationary process that tends to be slower and by unanchored inflation expectations, continues to demand caution and parsimony”, wrote the Copom. In the note, the Copom also does not give indications about a possible reduction in the interest rate in future meetings. However, unlike previous communicators, this time, the committee did not signal the possibility of an increase in the Selic rate. Copom’s decisions to maintain the Selic rate at 13.75% have been the frequent target of criticism from President Luiz Inácio Lula da Silva (PT) and government ministers (see below). The expectation of the financial market, released this week, is that this will be the last meeting that will keep the basic rate of the economy at the current level. In the forecast of economists from financial institutions, the beginning of the interest rate cut cycle should start from August, when the Selic would retreat to 13.50% per annum. In the communiqué about the decision, the Copom also wrote that the policy of maintaining the rate at 13.75% has had the desired effects of holding down inflation. The Copom stated that the moment is one of “patience” and “serenity”. “The committee evaluates that the situation demands patience and serenity in the conduct of monetary policy and recalls that future steps of monetary policy will depend on the evolution of inflationary dynamics”, says the note. Criticism of interest rates The Lula government has pressured the Central Bank to reduce interest rates. The assessment is that the current Selic level inhibits economic growth. This Monday (19), in an internet broadcast, Lula again said that the president of the Central Bank, Roberto Campos Neto, needs to explain to the population why the Selic remains at 13.75%. “Only the interest rate needs to go down, because there is no explanation either. The president of the Central Bank needs to explain, not to me, because I already know why it doesn’t go down, but to the Brazilian people and the Senate, [explicar] why doesn’t he download [a taxa]”, he said. On the same day (19), the Minister of Finance, Fernando Haddad, defended that the beginning of the interest rate cut “should have been in March”. This Wednesday (21), 51 members of the Economic Development Council Social Sustainability of the Presidency of the Republic, called Conselhão, joined the criticism and released an open letter to the president of the Central Bank and the directors of the institution asking for a cut in the basic interest rate Basic interest rate The Selic is the basic interest rate of the economy. It is the main monetary policy instrument used by the BC to control inflation. It 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. 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%. The inflation target for next year is 3% and will be considered met if it oscillates between 1.5% and 4.5%. 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.

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