market bets that BC will fulfill “promise” on interest rates
The Central Bank’s Monetary Policy Committee (Copom) decides, this Wednesday (20), the new interest rate. And everything indicates that the body should follow the path explained in the last minutes: a cut of half a percentage point, taking the Selic rate to 12.75% per year.
Unlike what happened at the last meeting, when analysts and the financial market differed on expectations, for this meeting there is a convergence of opinions. In the Copom options market, on B3, negotiations last Friday (15) indicated a 96.8% probability of a cut of this magnitude. Consultations with the financial market point in the same direction: in a survey by “Valor Econômico”, for example, 139 out of 140 institutions interviewed said they expected a drop of 0.5 percentage points.
Guide Investimentos assesses that the latest inflation data shows a more favorable trend, including in the components most sensitive to monetary policy and economic activity. This is the case, for example, of services inflation, which remained practically stable in August.
According to Bradesco, more well-behaved inflation, especially in the services segment, counterbalanced the volatility of the external environment and fiscal uncertainties. Which, in the bank’s assessment, brings comfort for the Central Bank to continue with its strategy of cuts of 0.5 percentage points per meeting.
The head of fixed income at XP Investimentos, Camila Dolle, expects this pace to be maintained subsequently, which would make the Selic close the year at 11.75%. According to her, expansionary fiscal policy continues to be a limiting factor for a greater cut in interest rates.
“Furthermore, the world is discussing the risk of interest rates in developed countries being higher in the long term, which tends to limit cuts in Brazil”, he highlights.
Itaú’s team of analysts points out that the balance of risks for inflation should continue to be described as symmetric, with directors highlighting that they see a narrower output gap (the difference between an economy’s potential and what it actually produces). than your reference scenario.
“The Copom will probably maintain its signal of serenity and moderation in conducting monetary easing, in order to consolidate the disinflation process and anchor expectations around its goals”, highlights the bank.
The trend is for interest rates to be maintained in the USA
The week is also a week for decisions on interest rates in the United States. 12-month inflation expectations fell to 3.1% in September, the lowest level since January 2021, according to the University of Michigan. In the 12 months ended in August, inflation was at 3.7%, according to the US Bureau of Labor Statistics (BLS).
Investors assign a 99% probability that the Fed will hold rates steady on Wednesday and just a 31% probability of a hike in November, according to CME Group’s FedWatch tool. “The Central Bank is expected to keep rates stable”, points out the analysis team at brokerage Avenue.
The tendency, according to XP, is for the Fed (the US central bank) to maintain a tough tone in the statement about the decision it takes. Activity remains resilient, with the latest data showing stronger than expected retail sales and industrial production.
