A change in the balance of risks considered by the Central Bank (BC) in conducting its monetary policy already allows a reduction in the Selic, the economy’s basic interest rate, to begin to be discussed, said specialists in a panel promoted by the CNN this Wednesday (8).
Experts cite the imminent arrival of the fiscal framework, which should replace the spending cap, and a commodification of commodity prices abroad as important components of this balance.
For Rafaela Vitoria, Chief Economist at Inter, the country’s risk balances and the external scenario, mainly with the “accommodation of commodities”, show “positive developments” for inflation – the BC’s main objective. At the same time, the high level of the Selic rate has created additional concerns that did not appear in the last minutes of the Monetary Policy Committee (Copom).
“Commodities are falling and this was not on the radar. We also have a squeeze on credit, especially after the Americanas case, and this greater risk aversion, seen in the banking and capital markets, is an additional concern that tends to slow down the economy even more”, she says.
The specialist mentions, for example, a survey by the Brazilian Association of Financial and Capital Market Entities (Anbima) released last Tuesday afternoon (7).
In February, capital market funding totaled BRL 13 billion, which corresponds to a 51.2% drop compared to the previous month — and the lowest monthly volume since May 2020. For Vitoria, the data illustrates how the interest rate has intensified risk aversion and harmed the economy.
“The balance of risks has shifted, and we can already start to debate when the monetary easing process can start,” she says.
Antonio Lacerda, doctor in economics and professor at PUC-SP, is reading that the Central Bank may start to review the level from the end of this semester and the beginning of the next, if the “technical context” is propitious.
“If the BC makes the decision to lower the Selic within a technical context, in which it analyzes and weighs all factors, a scenario of falling interest rates in the future is perfectly possible, not now or at the next meeting, but in the middle of the year or in the second semester, with inflation converging”, says Gala.
“Brazil has a slower economy and unemployment will probably increase, prices have dropped abroad… The scenario is completely different now and that is what the Central Bank must decide on.”
Analysts agree that the current level of Selic, which is already close to 14% per year, is incompatible with the country’s economic context, which increases the risk of creating “very serious consequences” if they remain at the current level of 13.75 %.
“A large part of the economic slowdown seen in the fourth quarter of 2022 can be explained by the tightening of interest rates, which are starting to take on more dramatic tones now,” said Paulo Gala, chief economist at Banco Master.
“It is possible that the GDP will fall more in this 1st quarter, so that we have a technical recession. This creates a rather complicated scenario. Looking ahead, the next steps should be to cut interest rates, especially if a fiscal rule comes along, as it seems to have been the case.”
Lacerda says he sees a contradiction: “At the same time that the BC argues that it is necessary to keep the rate high due to the uncertain fiscal framework, this same high rate ends up influencing future rates negotiated in the market. This makes financing the public debt very expensive, and, as there is a drop in revenue due to the stagnation of the economy, the debt-to-GDP ratio ends up being pressured.”
Because of this, the expert claims that there is an inversion of the cause-effect relationship. “Interest rates are high not because there is fiscal uncertainty, but because the pressures arising from high interest rate on the level of activity and the cost of financing unbalance and worsen the fiscal scenario”, he says.
Check out the CNN Panel in full in the video above.
Source: CNN Brasil
I am an experienced journalist, writer, and editor with a passion for finance and business news. I have been working in the journalism field for over 6 years, covering a variety of topics from finance to technology. As an author at World Stock Market, I specialize in finance business-related topics.