SVB crisis may change interest rate policy in the US and Brazil – 03/13/2023 – Market

The crisis at the American bank SVB sent investors a signal about the possibility of changes in the course of monetary policy in that country, with repercussions also on the trajectory of the basic interest rate in Brazil.

This Monday (13), there was a drop in interest rates negotiated in the American and Brazilian markets. Expectations for US interest rates at the end of 2023 dropped from something close to 5.5% to around 4.5% per year.

Goldman Sachs, for example, is already evaluating the possibility that the Federal Reserve, the US central bank, will pause the process of raising interest rates this month, at the meeting scheduled for next week.

The yield curve in Brazil already indicated the bet on a cut in the basic rate at the Copom (Monetary Policy Committee) meeting at the end of June. That is, the expectation was that the Central Bank would still maintain the Selic at the current 13.75% per annum in the two previous meetings, on March 22nd and May 3rd. Now, rates show that the ante has been upped in anticipation of that cut.

Luiz Fernando Figueiredo, former director of BC and chairman of the Board of Directors of Jive Investments, says that the developments of the SVB crisis could lead to a cut in the base rate sooner than previously projected.

“If there is a big contagion in the rest of the economy [global], without a doubt, this can anticipate a drop in interest rates in Brazil. I don’t think that’s what we’re talking about yet, but we need to see how this story unfolds.”

Figueiredo claims that the central bank and the US Treasury acted in a precise, timely and comprehensive manner when announcing measures to help the local financial system. He also highlights the market reaction in this first moment, better than expected. But he said that it is necessary to wait and see if more institutions will need help and if it will be possible to bail them out. “That’s all up in the air.”

Matheus Pizzani, economist at CM Capital, says that a smaller increase in interest rates in the US, as priced at the moment by the market, is just one of the factors that could pave the way for the Central Bank of Brazil to cut the basic rate sooner than expected. “It is worth noting that this process would continue to be linked to improvements in the fiscal field and the subsequent improvement in expectations [de inflação] of market agents.

Pizzani also claims that the US central bank remains attentive to the behavior of inflation. For him, data that will be released throughout this week may also be decisive for the decision of the monetary policy committee of that institution, on the next 22nd.

Alexandre Espirito Santo, chief economist at Órama, says he does not see a cause-effect relationship between the SVB event and the decisions of the Central Bank of Brazil. For him, the institution’s monetary policy is more susceptible to the new fiscal rule, which will replace the spending ceiling, than to the collapse of the American bank.

The economist says that it is still too early to speculate on the chance of a systemic crisis in the US, as the first impression is that there is no similarity with what happened to Lehman Brothers in 2008.

He also recalls the discussions about a possible credit crisis related to the Brazilian market since the beginning of this year, after the Lojas Americanas crisis. “If we are in the prelude to a credit crisis here, as some analysts defend, this needs to be avoided and the reduction of the Selic rate would help a lot”, says the economist.

In Brazil, Finance Minister Fernando Haddad said this Monday (13) that apparently the episode will not trigger a systemic crisis, especially after the reaction of the American authorities.