Central Bank signals double-digit Selic return

With inflation that does not let up, the Monetary Policy Committee (Copom) of the Central Bank raised in the last Wednesday (8) again the Selic by 1.50 percentage point, from 7.75% to 9.25% per year.

It is the highest level of the basic interest rate since September 2017, after the BC in 2021 promoted the biggest interest rate shock in almost 20 years.

In addition, the Copom has already paved the way for interest rates to return to double-digit levels, indicating a new increase “of the same magnitude” at the next meeting, in February – when the rate would then reach 10.75%.

The BC even left the door open for a change in the pace of increases, as it removed from its statement an excerpt in which it said that the 1.50-point step was the most appropriate to bring inflation to the target.

It maintained, however, the usual reservation that the plan could be changed with the evolution of inflation projections and expectations, the balance of risks and the evolution of economic activity, something that could start to weigh on Brazil already in technical recession.

Missed period

Even taking the interest to double digits, the BC may not reach its goal. In the financial market, most institutions are already expecting the breach of the inflation target this year and also in 2022.

For the chief economist of Garde Asset, Daniel Weeks, the BC maintains the impetus to lower inflation, but looks further ahead. “I thought it was a very smart way to assume that the year 2022 is lost.”

The chief economist at Santander Brazil, Ana Paula Vescovi, stated that the BC made it clear in its statement that it will not bring inflation to the target in 2022. “Our scenario is Selic at 12.25%, impacting activity.”