Copom reduces Selic to 10.50% per year; cut was 0.25% and at a slower pace than in recent meetings | Economy

The Monetary Policy Committee (Copom) of the Central Bank decided, this Wednesday (8), to reduce the Selic rate by 0.25 percentage points, from 10.75% per year to 10.50% per year.

This was the seventh consecutive cut in the basic interest ratewhich began to decline in August 2023. At the beginning of the cutting cycle, the Selic was at 13.75% per year.

Since then, the committee had been reducing the Selic at the same pace: 0.5 percentage points at each meeting.

With this Wednesday’s decision to cut the Selic rate to 10.50%, the BC changed this rhythm.

Copom once again indicates that it will make a new interest rate cut at the next meeting, in May

Even so, the rate reached its lowest level since February 2022, when it was 9.25% per year.

With the proposal to change in fiscal target and delay in reducing interest rates in the USAmost economists had already started betting that the Copom would make this adjustment, cutting the interest rate to 0.25 percentage points.

At the end of March, the BC had signaled that it would promote a new reduction of 0.5 percentage points at this May meeting, which would take the Selic rate to 10.25% per year.

This signaling, however, depended on confirmation of an “expected scenario” by the board of the Central Bank.

Since the end of March, however, President Lula’s economic team has proposed a reduction in targets for public accounts in 2025 and 2026, which makes room for more spending. Something that the president of the BC, Roberto Campos Neto, does not support.

And the external scenario worsened, with inflation still under pressure in the United States.

Because of this, most of the financial market adjusted its position and started to project a smaller interest rate cut, of 0.25 percentage points, at this Wednesday’s Copom meeting – to 10.50% per year.

In the statement released after the meeting, the committee said that “serenity and moderation in the conduct of monetary policy” are necessary. Furthermore, he stated that “future interest rate adjustments will be dictated by the firm commitment to convergence of inflation to the target”.

The Copom cited that the slowness in the disinflationary processunanchored inflation expectations and a challenging global scenario require this caution.

The members assess that “monetary policy must remain contractionary until not only the disinflation process is consolidated but also the anchoring of expectations around its goals”.

The score for this Wednesday’s meeting was not unanimous.

Five members voted for a 0.25 percentage point reduction. They are: Roberto de Oliveira Campos Neto (president), Carolina de Assis Barros, Diogo Abry Guillen, Otávio Ribeiro Damaso and Renato Dias de Brito Gomes.

Four voted for a reduction of 0.50 percentage points. They are: Ailton de Aquino Santos, Gabriel Muricca Galípolo, Paulo Picchetti and Rodrigo Alves Teixeira.

In the statement, the Committee assesses that the external environment “is more adverse” and cites “high and persistent uncertainty regarding the beginning of the easing of monetary policy in the United States” and pressures in the labor market.

“The Committee assesses that the scenario continues to require caution on the part of emerging countries”, says the text released after the meeting.

The Copom also mentions that, in Brazil, “the set of economic activity and labor market indicators has shown greater dynamism than expected”.

Regarding inflation, the statement points out that there are risk factors. “Among the upside risks to the inflationary scenario and inflation expectations, the following stand out: (i) a greater persistence of global inflationary pressures; and (ii) greater resilience in services inflation than projected due to a tighter output gap”, according to the text.

In the first meeting after the government review fiscal targetsthe Committee reported that it closely monitored the topic and its impacts on monetary policy.

“The Committee reaffirms that a credible fiscal policy committed to debt sustainability contributes to anchoring inflation expectations and reducing risk premiums on financial assets, consequently impacting monetary policy,” says the statement.

The Copom is formed by the president of the Central Bank, Roberto Campos Neto, and eight directors of the authority.

Selic is the main monetary policy instrument used by the BC to control inflation.

A rate influences all interest rates in the countrysuch as interest rates on loans, financing and financial investments.

The Copom usually meets every 45 days to define the Selic level. In 2024, the collegiate will meet five more times:

• June 18th and 19th
• July 30th and 31st
• September 17th and 18th
• November 5th and 6th
• December 10th and 11th