For government supporters, a cut of less than 0.5 pp in Selic will be a “provocation”

Part of the financial market assesses as real the possibility of the Copom (Monetary Policy Committee) of the BC (Central Bank) reducing the pace of Selic cuts this week, when the collegiate will address the matter. In the last 6 meetings, the authority promoted successive drops of 0.50 percentage points in the basic interest rate.

As a result, Selic went from 13.75% to 10.75% per year. In March, the Copom signaled that it would make the last cut followed by 0.5 pp. However, the change in the Brazilian fiscal target and the external scenario, with the maintenance of North American interest rates in the range of 5.25% to 5.50 % for the 6th time in a row, could influence a shy cut of 0.25 pp

On Wednesday (May 8, 2024), Copom will announce the decision. O Power360 questioned allies of President Luiz Inácio Lula da Silva (PT) about the chance of a smaller cut in the base interest rate. There is rejection of the possible measure.

The national president of the PT, federal deputy Gleisi Hoffmann (PR), is one of those who most criticize the head of the monetary authority, Campos Neto. There are restrictions on the economist’s work at the head of the Central Bank due to the fact that he was appointed by former president Jair Bolsonaro (PL) in 2019.

For the PT member, if the reduction is 0.25 percentage points, it will show the “political action” by Campos Neto.

“The BC is implementing a dropper policy of reducing interest rates. I had to be bolder given the controlled inflation we have. Campos Neto carries out monetary and fiscal terrorism. He plays against the country. If the Copom decides on a smaller cut, the political performance of this president, who sells himself as a technician, will become even clearer. It will be a service for the extreme right, for Bolsonarism”he declares.

Federal deputy Lindbergh Farias (PT-RJ) says that Campos Neto tries “disrupt the government”. He accuses the president of the municipality of taking advantage of the change in the 2025 fiscal target – which previously established a surplus of 0.5% and worsened when it went to zero deficit.

“Roberto Campos Neto took advantage of that change in the 2025 target, which sectors of the market already knew that it was not possible to have a surplus. It was Campos Neto himself, through interviews, from day one, that changed the market’s expectations about future interest rates. He did all the political work. In our view, there is a political position to disrupt the government. Almost a policy of sabotage”it says.

Lindbergh recognizes that the continuation of interest rates in the United States at the level of 5.25% to 5.50% interferes with the Selic’s trajectory. He assesses, however, that there is a “very big margin” for new interest cuts in Brazil.

The deputy classifies as “tragedy” the possible drop of 0.25 pp in the Selic at this week’s meeting. “It’s almost a provocation thing from the Central Bank. If someone puts it at 0.25 percentage points, the Copom meeting will split.”he adds.

The financial market continues to bet that the Selic will end 2024 below 2 digits. The latest estimate is 9.5% per year.

Senator Teresa Leitão (PT-PE) states that high interest rates harm the Brazilian economy in general. “The Central Bank cannot continue with this policy of holding interest rate hikes. This disrupts other economic indicators”he declares.

Deputy Zeca Dirceu (PT-PR) defends greater cuts as he assesses that inflation is under control. “The cut should have been greater than 0.5 pp a long time ago. Nothing justifies reducing the pace of cuts. If this happens, it will be bad for the country’s development.”it says.