Senate body assesses that there is room for interest rate reduction from August

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For the Independent Fiscal Institution (IFI), the size of the cut is still ‘uncertain’. Monetary Policy Committee, responsible for defining the Selic level, meets in early August. The Independent Fiscal Institution (IFI), a body linked to the Senate, sees room for the Central Bank to start the cycle of reducing the economy’s basic interest rate, the Selic, as of August. The assessment is included in the Fiscal Monitoring Report for July, released this Wednesday (19). “The improvement in the current inflation scenario, the moderation in the growth of economic activity after a strong first quarter led by the increase in agricultural production, and the most evident signs of a slowdown in the labor market indicate that there is room for the Central Bank to start a cycle reduction of the economy’s basic interest rate”, he says. For the institution, the magnitude of the drop is still “uncertain”, that is, of how much the reduction of the basic interest rate may be. “The future steps of the Copom — the timing [reunião de agosto ou de setembro] and the magnitude of the first cut [0,25 ponto percentual ou 0,5 0ponto percentual] — are conditioned to inflationary dynamics, in particular the components that are more sensitive to monetary policy, expectations for the IPCA for longer terms, and the evolution of economic activity and labor market data.” The Selic is at 13.75% per year, a level in force since August 2022, and which has been the target of criticism from President Luiz Inácio Lula da Silva (PT) and government ministers. See below the evolution of the rate: Stamp Selic rate in May 2023 g1 It is up to the Monetary Policy Committee (Copom), made up of the president and directors of the Central Bank, to define the basic interest rate. The next collegiate meeting is scheduled for August 1st and 2nd. , it was announced that the majority of the members of the collegiate Copom evaluated that the continuity of the drop in inflation, and its impact on market expectations for the IPCA, could enable a drop in interest rates in early August. In 2023, in addition to August, Copom should still meet three more times: August 1st and 2nd September 19th and 20th October 31st and November 1st December 12th and 13th Basic interest rate The Selic is the economy’s basic interest rate. It is the main monetary policy instrument used by the Central Bank to control inflation. The index influences all interest rates in the country, such as interest rates on loans, financing and financial investments. When inflation is high, the Central Bank raises the Selic rate. When inflation estimates are in line with the inflation target, the Central Bank can reduce the Selic rate. 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%.

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