Selic: Betting on interest rate cuts gains strength – 06/02/2023 – Market

The market is raising the stakes for the beginning of the basic interest rate cut cycle, the Selic, in the second half of this year. Steadily falling interest rates futures reinforce this.

Even the most pessimistic specialists with the Brazilian economy are starting to give in on the possibility of monetary relief later this year.

Since last week, some signs, both from the economy and from the president of the Central Bank, Roberto Campos Neto, reinforced the construction of an environment for reducing interest rates.

It started last Thursday (25) when the IPCA-15 (Extended Consumer Price Index – 15) came in below expectations by the market, in addition to showing a reduction in the cores —which exclude the most volatile items from the price basket analyzed in the surveys.

“If it continues on this trajectory, it is a sign that monetary policy is having an effect, so there is room for a cut in interest rates”, says the chief economist at Genial Investimentos, José Márcio Camargo.

The economist is known for being one of the most pessimistic at Faria Lima, and Genial works with the interest rate scenario at the current level, 13.75%, until the end of the year.

In addition to the IPCA-15, Camargo also sees a signal from Campos Neto regarding a loosening of monetary policy. The last speeches by the president of the Central Bank have shown a change in tone.

Last Monday (29), Campos Neto said during an event that the scenario for economic activity in Brazil is clearing up and the outlook for inflation has improved in recent weeks.

“When we get economic activity in Brazil, we also have good news. I always say that the scenario is clearing up a little, because we have an inflation that seems to be gearing towards an improvement, even if slowly, and at the same activity has been surprising on the upside,” said the BC president.

It is a change in relation to the harsher tone that Campos Neto had been adopting in relation to the importance of the Central Bank not giving in in the fight against inflation.

For the chief economist at Banco Master and professor at the Getulio Vargas Foundation, Paulo Gala, this change in discourse should already appear in the communiqué of the next interest rate decision by the Copom (Central Bank Monetary Policy Committee), on the 20th and 21st of June.

Gala believes that the start of monetary easing will begin in August. “In the interest curve there is a little cut for August”, she justifies.

The chief economist at MB Associados, Sergio Vale, adds that the GDP (Gross Domestic Product) data for the first quarter, released this Thursday (1st), reinforces this space for interest rate cuts in the second half, which should happen in September , in the expert’s opinion.

This is because the GDP grew above market expectations due to the strong performance of the agricultural sector, on the supply side. Domestic demand, on the other hand, was weak in the period.

“The GDP showed that the economy is at a standstill. This helps with the feeling of growth with little inflationary pressure,” he told the Sheet.

For economist Alexandre Schwartsman, former director of the Central Bank, the Copom will cut interest rates this year, starting in the second half of the year, because it will change its relevant horizon, the average period of time for which the BC looks to adjust its policy currency. According to Alexandre Schwartsman, the relevant horizon is changing to March 2025, when inflation should converge to the target.

Schwartsman is also a name known for his pessimism about the current scenario. Now, however, the expert sees room for interest rate cuts starting in September.