Market will test 0.75 point Selic cut this year, says chief economist at BTG – 8/9/2023 – Market

The chief economist at BTG Pactual, Mansueto Almeida, said this Wednesday (9) that the Central Bank correctly started the cycle of cutting the basic interest rate, the Selic, but said that the problem of already starting with a reduction of 0.5 percentage points will make the market question a larger drop of 0.75 points.

“At some point the market will make this bet. With much more conviction, perhaps for the last meeting of the year”, stated the economist.

The Central Bank started, last week, the cycle of reduction of the basic interest rate, with a cut of 0.5 point, to 13.25% per annum. According to Mansueto Almeida, there were good technical justifications for both a cut of 0.25 point and 0.5.

But even with the market’s bet on a 0.75 point cut, Mansueto Almeida says that, in the minutes of the last Copom (Monetary Policy Committee) meeting, released on Tuesday (8), it was clear that a substantial improvement in the inflationary dynamics, with a re-anchoring of market expectations for the coming years, for an intensification of interest rate cuts.

In addition, as quoted by the BC in the minutes, the economist recalls that the difference between current and potential economic growth (the output gap) needs to be greater for a greater reduction in the Selic rate.

And even if that happens, Almeida said that the real interest rate will start 2024 at a very high level.