Market starts to project Selic maintenance in September after Copom, says survey

The financial market changed its position after the meeting of the Monetary Policy Committee (Copom ) of August, and started to project a maintenance of the basic interest rate, Selic by 13.75% at the September meeting, according to a survey by consultancy BGC Liquidez.

The survey interviewed 139 market agents, divided between economists, investors and fund managers. Of this total, 40% considered the post-meeting Copom communiqué more dovishor light in relation to the fight against inflation . For 32%, the text came in line with expectations.

The consultancy points out that “economists were much more surprised on the dovish side than traders/managers”, with 57% indicating a milder tone. Among the second group, 33% had this position.

With this perspective, 51% of respondents began to project an unchanged Selic at 13.75% at the September meeting, that is, they consider that the cycle of high interest rates ended in August. For 48%, the cycle will continue with an increase of 0.25 pp. Before the meeting, 51% expected a new increase, and 44% predicted maintenance.

In the division by area of ​​activity, the change in perspective mainly involved investors and managers, with 51% betting on maintenance. Among economists, 39% project an unchanged Selic, and 61%, a rise of 0.25 pp

For the following meetings, in October and December, the market reinforced its bets on maintaining the Selic rate. Before the August Copom, 87% had this position for October and 95% for December. Now it’s 90% and 96%, respectively.

The change in the September forecast also led to the change in the majority forecast for the final interest rate in 2022. Prior to the August meeting, 39% had expected a final rate of 14%. Now, it’s 38%, while 48% expect a terminal Selic of 13.75%.

The survey also measured projections for Copom meetings in 2023. There was no significant change in bets, with most still expecting Selic to be maintained in February, March, May and June and cuts of 0.5 pp in August, September, November and December. As a result, the projection for the terminal Selic for next year was maintained at 11.5%.

In a statement, the Copom left the door open for another hike, of lesser magnitude, in September.

“The Committee will assess the need for a minor residual adjustment at its next meeting. The Copom emphasizes that it will remain vigilant and that future monetary policy steps may be adjusted to ensure the convergence of inflation to its targets”, he says.

The communiqué also indicates that the BC is starting to look to 2024 as part of the relevant horizon for decision-making.

“It was noted that the inflation projections for the years 2022 and 2023 were subject to high impacts associated with tax changes between calendar years. Thus, the Committee chose at this time to emphasize the twelve-month inflation in the first quarter of 2024, which reflects the relevant horizon, smoothes the direct effects arising from tax changes, but incorporates their secondary impacts on inflation projections relevant to the monetary policy decision”, he says.