Premature easing of interest rates may reaccelerate inflation – 06/27/2023 – Market

Cutting interest rates requires confidence and a premature easing could reaccelerate the country’s inflation, says the Copom (Monetary Policy Committee) of the Central Bank in minutes published on Tuesday (27).

The BC collegiate showed divergence in signaling what the next steps will be. The predominant evaluation, however, was that the continuation of the ongoing disinflationary process could make room for starting a “parsimonious process” of easing at the next meeting, in August.

Last Wednesday (21), the Copom unanimously decided to maintain the Selic at the level of 13.75% per year and left its next steps conditioned to data, mentioning current inflation dynamics, inflation expectations, among others. other factors, in a statement seen as more conservative by financial market agents.

The decision was negatively received by the economic team, which interpreted the communiqué as a “boycott” of the government of Luiz Inácio Lula da Silva (PT), which has been calling for interest rate cuts to stimulate economic activity.

“The Committee unanimously assesses that easing of the degree of monetary tightening requires confidence in the trajectory of the disinflation process, since premature easing may lead to reacceleration of the inflationary process and, consequently, lead to a reversal of the monetary easing process itself”, says the document.

“The materialization of this type of scenario can negatively impact not only the credibility of the monetary policy, but also the financial conditions”, he adds.