Dollar rises from R$5.17 after a 0.25 percentage point cut by the Copom; Ibovespa falls | Economy

The dollar rose sharply this Thursday (9), as investors reflected on the new decision of the Monetary Policy Committee (Copom), released the day before.

On Wednesday, the Central Bank of Brazil (BC) decided to reduce the Selic by 0.25 percentage points (pp), contrary to its own estimates — in March, the collegiate had predicted a cut of 0.50 pp at this month’s meeting .

The movement, according to experts, reflects the worsening of the fiscal situation and the maintenance of interest rates in the United States. (understand below)

On the agenda, investors also monitor a series of local and international indicators released throughout the week, in addition to several corporate balance sheets.

Ibovespa, the main stock index on the Brazilian stock exchange (B3), is operating at a sharp decline, with a widespread drop in shares from different sectors.

See below for a summary of the markets.

At 10:55 am, the dollar rose 1.62%, quoted at R$5.1733. At the day’s high, it reached R$5.1748. See more quotes.

On Wednesday, the North American currency closed up 0.47%, sold at R$5.0908.

As a result, he accumulated:

• increase of 0.42% in the week;
• decline of 1.96% in the month;
• gain of 4.91% in the year.

At the same time, the Ibovespa fell 1.44%, to 127,617 points.

On Wednesday, the index rose 0.21%, to 129,481 points.

As a result, he accumulated:

• increase of 0.76% in the week;
• advance of 2.82% in the month;
• losses of 3.51% in the year.

Understand what makes the dollar rise or fall

This week’s main highlight is Copom’s monetary policy decision. The BC decided to reduce the pace of cuts in the basic interest rate and reduced the Selic by 0.25 pp, contrary to its own estimates.

At the March meeting, the institution had estimated to promote another 0.50 pp cut in the Selic in May, in line with the reductions in recent meetings.

“The evidence of what we have seen in recent days shows us that the market has become more concerned about the fiscal [contas públicas]and what the fiscal balance will be in the future, with an effect on the risk premium, which makes the work more difficult and costly”, said Campos Neto, during his participation in an XP event in Washington, United States, last month.

This is because, by enabling more public spending in relation to what was previously expected with the change in fiscal targets, the tendency is for greater pressure on inflation in the coming years — making it more difficult to control.

Furthermore, the scenario of uncertainty gained even more strength after the Federal Reserve (Fed, the North American central bank) signaled that interest rates in the world’s largest economy could take longer to fall.

Last week, the US Central Bank kept the country’s interest rates unchanged at between 5.25% and 5.50% per year, the highest level in 20 years, reemphasizing caution with inflation. According to the FedWatch tool, which brings together market projections for interest rates in the United States, a rate cut cycle should only begin in September — or even after that.

In the statement released after the decision, the collegiate stated that it “has closely followed recent developments in fiscal policy and their 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,” the committee said in the document.

The Copom also highlighted that “it assesses that the uncertain global scenario and the domestic scenario marked by resilience in activity and unanchored expectations demand greater caution”, failing to signal that it foresees new Selic cuts ahead.

“Monetary policy must remain contractionary until it consolidates not only the disinflation process but also the anchoring of expectations around its targets”, said the committee in the document, reinforcing that the “extent and adequacy of future adjustments in the rate interest rates will be dictated by the firm commitment to converge inflation to the target”.

Furthermore, experts also reinforce that the fact that it was not a unanimous decision tends to weigh on the market this Thursday (8). This is because investors remain uncertain about what the transition to the new Central Bank management should be like. The term of Roberto Campos Neto, current president of the institution, ends at the end of 2024.

On the agenda, investors will also review a series of corporate balance sheets and national and international indicators.

According to the government, in April:

• exports added US$30.92 billion;
• imports added US$ 21.879 billion.

Still among the indicators, the General Price Index – Internal Availability (IGP-DI) rose 0.72% in April, a significant reversal of the 0.30% drop seen in the previous month. Investors are also awaiting the release of the Broad Consumer Price Index (IPCA, the country’s official inflation) on Friday (10).

On the fiscal side, the Minister of Planning, Simone Tebet, stated that the government does not work with a limit on emergency spending to combat the catastrophe in RS, but highlighted that experience shows that disbursements for this purpose will not be “meteoric” taxes and should not “even scratch” the country’s public debt.

Furthermore, the ministry also informed that the government must still assess the impacts of heavy rains in Rio Grande do Sul on the Brazilian trade balance from May onwards.

Abroad, the market is still attentive to possible talks from Fed officials, looking for signs about the institution’s next steps regarding the country’s interest rates.

On Wednesday (8), the president of the Fed district in Boston, Susan Collins, stated that the current configuration of North American monetary policy will slow down the country’s economy. With this, the central banker says she believes that inflation can return to the 2% target.

On Tuesday (7), the president of the Minneapolis Fed, Neel Kashkari, stated that it is possible that the authority will decide to reduce US interest rates later this year if pressure on prices decreases again.

Economic data from the United States is also on the radar.

*With information from Reuters news agency