Announcements are more important than interest rate decisions, says expert

Communiqués from the central banks of the United States and Brazil this Wednesday (21) will be more important than your decisions about the interest rates assesses senior economist at LCA Consultores Thaís Zara.

In an interview with CNN she said that the market’s expectation is for a 0.75 percentage point hike in the US interest rate, with a “marginal bet” on a larger increase of 1 pp.

For her, “more important than the hike is to check how the announcement of this meeting will be, which brings clues as to how far you can see this interest rate going, and check the press conference of the president of the Federal Reserve after this announcement”.

She explains that the president, of the municipality, Jerome Powell , should be more nuanced when speaking to the press. He can indicate, for example, if he is more concerned about inflation or if he thinks that the design outlined in the communiqué will be enough to lead to inflation, currently in the highest level in 40 years down.

Zara estimates that, if interest rates start 2023 between 4% and 4.5%, it would be possible for the United States to avoid a recession, in the so-called “soft landing”. But if the rate ends the year at an even higher value, between 6% and 6.5%, “then it will be heading towards a recessive scenario, with all the negative repercussions it would have for emerging countries, including Brazil”.

In the case of Brazil, she recalls that the central bank started the cycle of high interest rates before, even due to the energy problems that the country faced before the rest of the world. Therefore, the Monetary Policy Committee (Copom ), is now at the end of the bullish cycle.

Her expectation is that the Selic rate at the current level, of 13.75%, with a lower chance of a last increase of 0.25 pp

“What matters is the communication from the Central Bank, which will say that the cycle has ended regardless of whether there is a new high or not, but it will remain very vigilant, and that means that it will keep the interest rate at this level for a prolonged period to guarantee convergence of inflation to target”, he says.

The economist highlights that, even with the recent deflations the 12-month accumulated inflation remains “very high”, especially when observing less volatile items, which indicates that inflation is still “very entrenched”.

“The BC needs to keep the rate high for longer to guarantee that inflation will converge in 2023 and 2024, and this will bring a slowdown in the economy, so we will most likely grow less than in 2022, which will also occur in the rest of the world”, he highlights.